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1123], at 3396 : 1997 SCC (L&S) 1806.

33 (1997) 3 SCC 72 [LNIND 1997 SC 192] [LNIND 1997 SC 192] [LNIND 1997 SC 192] : AIR 1997 SC 1030 [LNIND 1997 SC
192] [LNIND 1997 SC 192] [LNIND 1997 SC 192].

34 U.P. State Road Transport Corporation v. Subash Chandra Sharma, AIR 2000 SC 1163 [LNIND 2000 SC 492] [LNIND
2000 SC 492]: (2000) 3 SCC 324 : 2000 (1) LLJ 1117 [LNIND 2000 SC 492] [LNIND 2000 SC 492].

35 U.P. State Road Transport Corporation v. Subhash Chandra Sharma, AIR 2000 SC 1163 [LNIND 2000 SC 492] [LNIND
2000 SC 492]at 1165 : (2000) 3 SCC 324 [LNIND 2000 SC 492] [LNIND 2000 SC 492] : 2000 (1) LLJ 1117 [LNIND 2000 SC
492] [LNIND 2000 SC 492].

36 Apparel Export Promotion Council v. A.K. Chopra, AIR 1999 SC 625 [LNIND 1999 SC 33] [LNIND 1999 SC 33] [LNIND
1999 SC 33], at 630 : (1999) 1 SCC 759 [LNIND 1999 SC 33] [LNIND 1999 SC 33] [LNIND 1999 SC 33] : 1999 (1) LLJ 962
[LNIND 1999 SC 33] [LNIND 1999 SC 33] [LNIND 1999 SC 33].

37 AIR 2003 SC 1571 [LNIND 2003 SC 181] [LNIND 2003 SC 181] [LNIND 2003 SC 181]: 2003 (2) LLJ 181 : (2003) 4 SCC
364 [LNIND 2003 SC 181] [LNIND 2003 SC 181] [LNIND 2003 SC 181].

38 AIR 2000 SC 3689 [LNIND 2000 SC 1585] [LNIND 2000 SC 1585] [LNIND 2000 SC 1585]: 2000 LIC 304.

39 AIR 2003 SC 1571 [LNIND 2003 SC 181] [LNIND 2003 SC 181] [LNIND 2003 SC 181], at 1576 : 2003 (2) LLJ 181 [LNIND
2003 SC 181] [LNIND 2003 SC 181] [LNIND 2003 SC 181] : (2003) 4 SCC 364 [LNIND 2003 SC 181] [LNIND 2003 SC 181]
[LNIND 2003 SC 181].

40 Regional Manager, U.P. SRTC v. Hoti Lal, (2003) 3 SCC 605.

41 Regional Manager, U.P.S.R.T.C. v. Hotilal, (2003) 3 SCC 605, 614 : 2003 (2) LLJ 267 : AIR 2003 SC 1462.

42 AIR 2003 SC 3712 [LNIND 2003 SC 732] [LNIND 2003 SC 732] [LNIND 2003 SC 732]: 2003 (3) LLJ 823 : (2003) 8 SCC 9
[LNIND 2003 SC 732] [LNIND 2003 SC 732] [LNIND 2003 SC 732].

43 Bhagat Ram v. State of H.P., AIR 1983 SC 454 [LNIND 1983 SC 35] [LNIND 1983 SC 35] [LNIND 1983 SC 35]: (1983) 2
SCC 442; Ranjit Thakur v. Union of India, AIR 1987 SC 2386 [LNIND 1987 SC 964] [LNIND 1987 SC 964] [LNIND 1987 SC
964]: (1987) 4 SCC 611 : 1988 (1) LLJ 256 [LNIND 1987 SC 697] [LNIND 1987 SC 697] [LNIND 1987 SC 697]; U.P. State
Road Transport Corporation v. Mahesh Kumar Mishra, (2000) 3 SCC 450 [LNIND 2000 SC 491] [LNIND 2000 SC 491] [LNIND
2000 SC 491] : AIR 2000 SC 1151 [LNIND 2000 SC 491] [LNIND 2000 SC 491] [LNIND 2000 SC 491]: 2000 (1) LLJ 1113.

44 AIR 2003 SC 3712 [LNIND 2003 SC 732] [LNIND 2003 SC 732] [LNIND 2003 SC 732]at 3713 : 2003 (3) LLJ 823 [LNIND
2003 SC 732] [LNIND 2003 SC 732] [LNIND 2003 SC 732] : (2003) 8 SCC 9 [LNIND 2003 SC 732] [LNIND 2003 SC 732]
[LNIND 2003 SC 732].

45 Mineral Development Ltd. v. State of Bihar, AIR 1960 SC 468 [LNIND 1959 SC 224] [LNIND 1959 SC 224] [LNIND 1959
SC 224]: 1960 (2) SCR 609.

46 Akbar Badruddin v. Collector of Customs, (1990) 2 SCC 203 [LNIND 1990 SC 82] [LNIND 1990 SC 82] [LNIND 1990 SC
82], 220 : AIR 1990 SC 1579 [LNIND 1990 SC 82] [LNIND 1990 SC 82] [LNIND 1990 SC 82].

47 Union of India v. Rajesh PU, Puthuvalnikathu, (2003) 7 SCC 285 [LNIND 2003 SC 594] [LNIND 2003 SC 594] [LNIND 2003
SC 594] : AIR 2003 SC 4222 [LNIND 2003 SC 594] [LNIND 2003 SC 594] [LNIND 2003 SC 594].

48 Union of India v. Rajesh PU, Puthuvalnikathu, (2003) 7 SCC 285 [LNIND 2003 SC 594] [LNIND 2003 SC 594] [LNIND 2003
SC 594] at 289-90 : AIR 2003 SC 4222 [LNIND 2003 SC 594] [LNIND 2003 SC 594] [LNIND 2003 SC 594]: 2003 LIC 2653.

49 On the present-day thinking on the viability of the Wednesbury test, see, infra, under "legitimate Expectation". JAIN, Indian
Constitutional Law, 1147-1152.

50 See, (1990) 2 SCC 203 [LNIND 1990 SC 82] [LNIND 1990 SC 82] [LNIND 1990 SC 82], 220 : AIR 1990 SC 1579 [LNIND
1990 SC 82] [LNIND 1990 SC 82] [LNIND 1990 SC 82], infra.

51 Om Kumar v. Union of India, AIR 2000 SC 3689 [LNIND 2000 SC 1585] [LNIND 2000 SC 1585] [LNIND 2000 SC 1585]at
3702 : 2000 (7) Scale 524 [LNIND 2000 SC 1585] [LNIND 2000 SC 1585] [LNIND 2000 SC 1585]; JAIN, Cases, IV, Chapter
XXIV.

52 Reference has been made to the following cases in this connection : R.M. Seshadri v. District Magistrate, AIR 1954 SC 747
[LNIND 1954 SC 121] [LNIND 1954 SC 121] [LNIND 1954 SC 121]: 1955 (1) SCR 686; Union of India v. Motion Picture
Association, AIR 1999 SC 2334 [LNIND 1999 SC 1251] [LNIND 1999 SC 1251] [LNIND 1999 SC 1251]: (1999) 6 SCC 150; S.
Rangarajan v. P. Jagjivan Ram, (1989) 2 SCC 574 [LNIND 1989 SC 196] [LNIND 1989 SC 196] [LNIND 1989 SC 196] : JT
1989 (2) SC 70 [LNIND 1989 SC 196] [LNIND 1989 SC 196] [LNIND 1989 SC 196].

53 AIR 2000 SC 3689 [LNIND 2000 SC 1585] [LNIND 2000 SC 1585] [LNIND 2000 SC 1585], at 3702 : 2000 (7) Scale 524
[LNIND 2000 SC 1585] [LNIND 2000 SC 1585] [LNIND 2000 SC 1585].
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54 See, Chintaman v. State of M.P., AIR 1951 SC 118 [LNIND 1950 SC 40] [LNIND 1950 SC 40] [LNIND 1950 SC 40]: 1950
SCR 759; State of Madras v. V.G. Row, AIR 1952 SC 196 [LNIND 1952 SC 23] [LNIND 1952 SC 23] [LNIND 1952 SC 23]:
1952 Crlj 966 : 1952 SCR 597 [LNIND 1952 SC 23] [LNIND 1952 SC 23] [LNIND 1952 SC 23]; Indian Express Newspapers v.
Union of India, AIR 1986 SC 515 [LNIND 1984 SC 337] [LNIND 1984 SC 337] [LNIND 1984 SC 337], 543 : (1985) 1 SCC 641
[LNIND 1984 SC 337] [LNIND 1984 SC 337] [LNIND 1984 SC 337].

55 (2004) 2 SCC 130 : 2004 (2) Supreme 539.

M P Jain Principles of Administrative Law/M P Jain Principles of Administrative Law/Volume 2/CHAPTER

XXVI GOVERNMENT CONTRACTS (I)

CHAPTER XXVI

GOVERNMENT CONTRACTS (I)

1. INTRODUCTORY

Government contracts, i.e., contracts between private individuals, on the one hand, and the Government, or
some public authority, on the other, have come to assume a very significant place in modern economy. In
modern times, the state is the source of much wealth. In the modern era of a welfare state, Government's
economic and developmental activities are expanding.1 Government has large funds at its disposal and has
a huge programme of undertaking developmental activities. It is consequently the biggest purchaser of
goods and employer of talent. Many individuals, businessmen and corporations enjoy largess in the form of
government contracts. A large body of individuals seek to deal with the Government. The Apex Court has
taken note of this development in these words :2

"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 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 vast and inevitable increase in the frequency with which ordinary citizens come
into relationship of direct encounter with state powerholders."

The subject of government contracts is thus becoming more and more important day by day in the modern
society. This subject is also assuming great significance in Administrative Law.

Besides, in the modern welfare state, the Government is increasingly assuming the role of dispenser of large
monetary benefits, i.e., jobs, licences, quotas, mineral rights etc. Some of these benefits may be in the
nature of legal rights but a large majority of these are in the nature of privileges. Questions constantly arise
regarding the power of the Government to confer these benefits on individuals. Awarding a contract to
someone, or conferring an economic benefit or largess is eminently an example of the exercise of the
Government's discretionary power.3 Therefore, the question arises whether any restrictions operate on the
Government's discretion in this area.

More and more of an individual's wealth now consists of these new forms of property. The basic question,
therefore, is to regulate, structure and discipline Government discretion to enter into contracts or confer such
benefits. There is thus need to develop some norms to protect individual interest in having access to such
wealth. It is necessary to ensure that injustice is not done to an individual by the state or its instrumentalities.
It becomes necessary to structure and restrict the power of the Government so that it is not exercised in an
arbitrary manner. As such wealth assumes greater and greater importance in the life of the nation, there is
going to be greater and greater competition among the claimants of such wealth and the courts will be
increasingly called upon to mediate in such disputes.4
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Basically, in this area, problems arise concerning the exercise of Government's discretionary power to award
contracts, or stated more broadly, to confer benefits and largesse on the people. The courts have to develop
norms to see that injustice is not done in this area by the Government to individuals by unduly favoring some
and discriminating against others. There is need for rule of law in socio-economic distributive justice.

The significance of proper legal norms in this area will be obvious when it is remembered that statutory
authorities have proliferated over time and a huge contractual field has thus come into existence. Many a
time, standard forms of contract are used in which the individual has no choice but to sign on the dotted line
and the terms and conditions of the so-called 'contract' are dictated by the monopolistic state authority
concerned and the individual has very little say in the matter. At times, the Government may use its power to
award contracts to help and promote certain groups, or to achieve certain national objectives. For example,
in India, the Government seeks to help small scale units and public enterprises by giving them a 15 per cent
preference in price over the price quoted by others while purchasing something or accepting a tender.5 In
this context, therefore, the question whether or not persons dealing with Government enjoy any legal
protection assumes great significance and relevance. Some of questions which arise in this area are :

(a) Can the Government award a contract to any one it likes?

(b) Can the Government withhold, or revoke a contract at its pleasure?
(c) Is the Government in the same position in this area as any private person?

The subject of government contracts has accordingly assumed great significance in Administrative Law.

It needs to be emphasized that although contract is basically a matter of private law, the law relating to
Government contracts is becoming, in modern times, in many ways, distinct from the law pertaining to private
contracts and is assuming the character of public law. In this area, there is need to protect public interest and
also to protect individuals against unfair exercise of administrative power. Government contracts cannot be
viewed purely as being similar in all respects to private contracts between two individuals, for here both
administrative and contractual powers intersect. Such contracts raise problems of public law, such as,
estoppel, natural justice, fundamental rights, writ jurisdiction, as the discussion below will show.

In the French Jurisprudence, a distinct branch of law, contracts administratif, has arisen to take care of the
distinctive features of Government contracts.6 Even in the U.S.A., the law relating to Government contracts is
quite sophisticated.7 But, in India, the law in this area is still in the process of evolution. However, for
sometime now, a judicial trend is discernible to regard contracts between Government and private individuals
as not merely a matter of private law but, to some extent, of public law as well. For sometime now, the courts
have started emphasizing administrative aspects of government contracts as well instead of projecting solely
the contractual aspects thereof. Government contracts cannot be treated as being on all fours with contracts
between private individuals. As Government is one of the parties to the contract, some aspects of public law
necessarily come into the picture. It is axiomatic to say that Administrators must use their powers, whether
contractual or otherwise, in a proper manner.

A feeling is gathering strength that Government is always a Government whether it is dealing with matters of
administration or contract. The Government ought therefore to be held subject to some public law discipline
in the contractual area.8 Since Ram Sanehi,9 the judicial trend has been increasingly emphasizing the
administrative aspects of Government contracts and moving away from the purely private law approach. It is
being realized that if the courts lay stress only on contractual aspects, ignoring public law aspects of
Government contracts, then it may be tantamount to letting public authorities use their powers as they like
without the injured party having much of an opportunity to have redress against an improper exercise of
power.

In this Chapter some of the characteristics and incidents of Government contracts are described and
discussed. Problems arising solely under the Contracts Act in the area of government contracts are not
discussed here.10 Only such problems as have a public law dimension are being considered here.

(a) Position in Britain

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Before 1947, in common law, the crown could not be sued in a court on a contract. This privilege of the
crown was reminiscent of the feudalism era when a lord could not be sued in his own courts. Another maxim
which came into play was that king can do no wrong.

A subject could, however, seek redress against the crown by moving a petition of right in which he set out his
claim. If the royal fiat was granted, then the action could be tried in a court. The royal fiat was granted as a
matter of course but not as a matter of right. There was no remedy available if the fiat was refused in any
specific case.

The Crown Proceedings Act, 1947, abolished this procedure and permitted suits being brought against the
crown in the ordinary courts to enforce contractual liability barring a few types of contracts.11

2. RELEVANT CONSTITUTIONAL PROVISIONS IN INDIA

The starting point of the subject of government contracts in India is to be found in Arts. 298 and 299(1) of the
Constitution. Art. 298 says inter alia that the executive power of the Union or a State extends to the making
of contracts for any purpose.12 This brief provision is very potent and settles several troublesome questions
which may otherwise arise, e.g., the power of a Government to enter into a contract is not conditioned by the
scheme of distribution of legislative powers between the Centre and the States.13 This means that the
Central or a State Government can enter into a contract whether or not its subject-matter is within the
Government's legislative competence.

Art. 298 also clarifies that the Government can enter into a contract in exercise of its executive power and so
no statutory authority is needed for the purpose.

3. FORMATION OF CONTRACTS

Art. 299(1) lays down three requisite conditions which a contract made in exercise of the executive power of
the Centre or of a State is required to fulfil :14 These conditions are :

(1) Such contracts must be expressed to be made by the President or the Governor as the case
may be.
(2) Such contracts and all assurances15 of the property made in exercise of the executive power
are to be executedon behalf of the President or the Governor as the case may be.
(3) The contracts are to be executedbysuchpersons and in such manner as the President or the
Governor may direct or authorise.

The use of the word executed in propositions (2) and (3) above, indicates that the contract between the
Government and any person must be in writing. A mere oral agreement is not valid for the purposes of Art.
299(1).

(a) Art. 299(1) is mandatory

The courts have generally taken the position that Art. 299(1) has not been inserted in the Constitution for the
sake of mere form, but it is based on public policy. It is embodied in the Constitution for the protection of the
general public. Its function is to safeguard the Government from being saddled with liability for unauthorised
contracts. Art. 299(1) has been embodied to protect the general public as represented by the Government.

Accordingly, in a number of cases, the Supreme Court has adopted a strict view of Art. 299(1) and has held
that the terms of Art. 299(1) are mandatory and not directory; that these formalities cannot be waived or
dispensed with. Therefore, a contract not meeting the conditions stipulated in Art. 299(1) becomes nullified
and void. Such a contract cannot be enforced at the instance of any of the contracting parties. Neither can
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the Government be sued and held liable for damages for breach of such a contract, nor can the Government
enforce such a contract against the other contracting party.16

It may be of interest to note that, in the beginning, some of the High Courts did not take such a rigorous view
of Art. 299(1) and they showed willingness to accept Government contracts not fully complying with Art.
299(1).17 On the other hand, from the very start, the Supreme Court took a strict view of Art. 299(1).

(1) Chowdhry

The leading case on the point is K.P. Chowdhry v. State of Madhya Pradesh 18 At an auction for forest
contracts, the appellant signed the sale notice agreeing to abide by the terms of the auction. One of the
terms was that if the bidder failed to complete the formalities after acceptance of the bid, his earnest money
would be forfeited, the contract re-auctioned at his risk and any deficiency occurring was to be recoverable
from him as arrears of land revenue. His was the highest bid, and, after the auction, he signed a contract
form with a surety. As the bid amount was higher than what the immediate officer could accept, he referred
the matter to the divisional forest officer for sanction and signature.

In the meantime, a dispute arose between the bidder and the forest department regarding the marking of the
trees auctioned. As the dispute was not settled to the satisfaction of the bidder, he refused to complete the
contract. Notice was given to him that if he did not complete the necessary formalities within a week, the
contract in his favour would be cancelled, the contract would be reauctioned, and that he would be required
to meet the deficiency, if any, between the amount offered by him and the bid amount offered at the
re-auction. There being a shortfall of over 51 thousand rupees at the re-auction, action was initiated against
the appellant to recover the amount as arrears of land revenue. This was in accordance with the conditions
of sale which he had signed. The appellant filed a writ petition to challenge the recovery proceedings against
him.

In this case, the admitted position was that a contract complying with Art. 299(1) had never been signed.
Therefore, the question arose whether his signing of the sale notice created any contract between the State
Government and the bidder and whether the liability arising from the conditions of auction could be enforced
and the deficiency on the re-auction recovered from him, even though it was not in full compliance with Art.
299 (1).

The High Court dismissed the petition as it took the view that an implied contract had arisen as a result of the
appellant's accepting the conditions of auction and that such an implied contract was not hit by Art. 299(1)
which applied only to written contracts.19

On appeal, the Supreme Court reversed the High Court. In the pre-Constitution cases,20 S. 175(3), of the
Government of India Act, 1935, had been held to be mandatory and not directory and if the contract did not
conform to the requirements prescribed by S. 175(3), no obligation enforceable at law flowed therefrom. The
Court thus ruled that there was no contract between the bidder and the State Government.

The Court also said that "in view of Art. 299(1) there can be no implied contract between the Government
and another person."21 Art. 299(1) being in "mandatory terms" "no implied contract could be spelled out
between the Government and the appellant" as " Art. 299 in effect rules out all implied contracts between a
government and another person".22 The Court reasoned that to allow implied contracts between government
and another person would be to make Art. 299(1) a dead letter, for then a person having a contract with the
Government which was not executed according to Art. 299(1) could get away by pleading that an implied
contract should be inferred on the facts and circumstances of the case. "This is of course not to say that if
there is a valid contract as envisaged by Art. 299(1), there may not be implications arising out of such a
contract".

The Court also ruled that "if the contract between the government and another person is not in full
compliance with Art. 299(1), it would be no contract at all and could not be enforced either by the
Government or the other person as a contract.

In the instant case, a person before bidding at an auction, signed a sale notice agreeing to abide by the
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terms of the auction. One of the terms was that if the bidder failed to complete the formalities after
acceptance of his bid, his earnest money would be forfeited, the contract reauctioned at his risk, and if any
deficiency occurred, it was to be recoverable from him as arrears of land revenue. The question arose
whether signing of the sale notice by the bidder created any contract between the government and the
bidder. It was not in full compliance of Art. 299. The Supreme Court ruled that there was never a contract as
required by Art. 299(1). Nor could the signing of the sale conditions before, and bid sheet after, the auction
amount to such a contract. The court also ruled out any implied contract between the government and the
bidder. No money could thus be recovered from the appellant.

The court justified its strict judicial instance on Art. 299 by arguing that if implied contracts between the
government and other persons were allowed, then Art. 299(1) would in effect, become a dead letter, for then
a person who had a contract with the Government which was not executed at all in the manner provided in
Art. 299(1) could get away by pleading that an implied contract be inferred from the facts and circumstances
of the case.

(2) After Chowdhry

Thus, since Chowdhry, the view has come to be accepted that Art. 299(1) is mandatory and that a contract
not complying with the formalities of Art. 299(1) is no contract at all and so is unenforceable in a court of law.
For example, a similar rigid stand was taken by the Supreme Court in Mulamchand.23

But then, at times, the Supreme Court has taken a somewhat relaxed view of compliance with Art. 299(1).
The Court realises that insistence on a too rigid observance of the conditions stipulated in that Article may
not always be a practical proposition. In a vast organisation like the Government, hundreds of Government
officers daily enter into a variety of contracts, sometimes of a petty nature, with private parties. Contracts are
at times entered into through correspondence or even orally. At times, the Government officers may have to
act in emergency. It would be extremely inconvenient from the administrative point of view if it were insisted
that each and every contract must be effectuated by a ponderous legal document couched in a particular
form.

The judicial attitude towards Art. 299 has thus sought to balance two motivations. On the one hand, it is
necessary to protect the Government from unauthorised contracts. On the other hand, it is necessary to
safeguard the interests of the unsuspecting and unwary parties entering into contracts with government
officials without fulfilling all the formalities laid down in Art. 299(1). Insistence on a strict compliance with
these conditions may be inequitable to private parties, and, at the same time, make Government operations
extremely difficult and inconvenient in practice. Consequently, in the context of the facts of some cases, the
Supreme Court and the High Courts as well, have somewhat mitigated the rigours of the formalities
contained in Art. 299(1), and have enforced contracts even when there has been not full, but substantial,
compliance with the requirements of Art. 299(1).24 In effect, it may be true to say that judicial view has
oscillated between a liberal and a rigid interpretation of Art. 299(1).

(b) A Written Contract Necessary

As stated above, a contract to be valid under Art. 299(1) has to bein writing. The word 'executed' in Art.
299(1) brings out this idea of a written contract. Thus, a mere oral contract is not sufficient for the purposes
of Art. 299(1). But it does not mean that there should always be a formal document of contract between the
Government and the other contracting party for the purpose. A valid contract could emerge through
correspondence, or through offer and acceptance, if all the conditions of Art. 299(1) are fulfilled. This
proposition is illustrated by Union of India v. Rallia Ram 25

(1) Rallia Ram

In the instant case, the Chief Director of Purchases, Government of India, invited tenders for purchase of
cigarettes. The respondent's tender was accepted and the acceptance letter was signed by the Director and
it contained an arbitration clause. The Supreme Court ruled that the constitutional provision [ Art. 299(1)] did
not in terms require that only a formal document executed on behalf of the Government of India, and the
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other contracting party, alone is effective to constitute a binding contract. The expression 'executed' in Art.
299(1) does not by itself contemplate the execution of a formal contract by the contracting parties. In the
absence of any direction by the President prescribing the manner in which a contract is to be executed, a
valid contract may result from correspondence between the parties concerned. Therefore, the Court held : "A
tender for purchase of goods in pursuance of an invitation issued by or on behalf of the Governor-General of
India and acceptance in writing which is expressed to be made in the name of the Governor-General and is
executed on his behalf by a person authorised in that behalf, would conform to the requirements of S.
175(3)."

To bring this statement up-to-date, we can read 'President' instead of the 'Governor-General' and ' Art.
299(1)' instead of ' S. 175(3).' In the instant case, the correspondence between the parties ultimately
resulting in the acceptance note was held to amount to a contract.

In this case, the correspondence between the parties ultimately resulting in the acceptance note was held to
amount to a contract. This means that a binding contract by tender and acceptance can come into existence
if the acceptance is by a person duly authorised in this behalf by the President.

In Union of India26 the Supreme Court observed :

"It is now settled by this Court that though the words 'expressed' and 'executed' in Art. 299(1) might suggest
that it should be by a deed or by a formal written contract, a binding contract by tender and acceptance can
also come into existence if the acceptance is by a person duly authorized in this behalf by the President of
India."

(c) Executed by an authorised Person

Under Art. 299(1), a contract may be entered into on behalf of the Government by a person authorised for
the purpose by the President or the Governor as the case may be. A contract entered into by an officer not
authorised to enter the same is not valid or binding.27

Art. 299(1) does not prescribe any particular mode to confer authority on a person to execute the contract on
behalf of the Government. Usually, such conferment of authority is by a notification in the official gazette but
this need not always be so; authority may be granted by express rules, or by a formal notification, or special
order. Authorisation may be conferred ad hoc on any person. Further, an authority need not be given by
rules expressly promulgated for the purpose. Even when authority is given generally by rules or a
notification, a special authority can validly be given ad hoc in respect of a particular contract or contracts by
the President/Governor to an officer other than the one generally authorised.

There was an offer by the respondent company to purchase surplus rails from the Railway board. The letter
accepting the said offer was written by the Secretary to the Railway Board. The Supreme Court rules that no
binding or concluded contract came into effect because the only person authorised to enter into a contract for
the sale of the rails was the Director of Stores, and the Secretary was not authorised to enter into the
contract on behalf of the President of India.28

(1) Thapar

A dispute arose between the Bihar Government and the respondent company over certain bills pertaining to
certain works executed by the company. An agreement was entered into between the two parties to refer the
matter to arbitration. On behalf of the Government, this agreement was signed by the executive engineer.
The question arose whether the executive engineer was an authorised person to execute the contract. There
was a notification conferring generally the power on certain officers (not the executive engineer) to sign
certain contracts, but, in the instant case, held the Supreme Court, the executive engineer was specially
authorised to execute the arbitration agreement. The Court came to this conclusion by looking at the relevant
correspondence.29

(2) Bhikraj
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In Bhikraj Jaipuria30 several contracts were entered into by the Divisional Superintendent, East Indian
Railway, but there was no express authority conferred on him to do so. The Supreme Court however inferred
the authority to enter into the contracts from the following facts. The firm had tendered large quantities of
foodgrains and this offer was accepted by the railway administration. A scheme to distribute foodgrains to
railway employees had been accepted by the Railway Board. Officers were authorised to take delivery of
foodgrains, and transport and distribute the same. They fixed programmes of inspection, kept wagons for
taking delivery, returned empty wagons, entered into correspondence, accepted bills and railway receipts,
and made payments of the bills. No express authority to execute the contracts had been conferred on the
Divisional Superintendent who had issued the purchase orders. Nevertheless, in the opinion of the Court, all
these facts "could only be consistent with the contracts having been made with the authority of the railway
administration granted to the Divisional Superintendent."

(3) Ogha

If Government objects to a contract duly signed by an official in the course of official business, the burden to
prove that the concerned official was not 'authorised' is on the Government. This is because of the
presumption under S. 114(c) of the Evidence Act that the official acts have been regularly performed. A
contract was signed by the deputy secretary to the State Government. The State denied that he had
authority to enter and execute the contract but tendered no evidence in support of its assertion. The High
Court ruled that the contract was valid as the State led no evidence on the point and thus the presumption
under S. 114(c), Evidence Act, could be raised.31

(4) Raipada

In a Calcutta case,32 the question was whether the officer signing the contract had authority to do so. The
State impugned the validity of the contract on the basis that the concerned officer had not been empowered
to enter into the said contract. The other party led evidence to show that the concerned officer did have
authority to execute the contract. The High Court held the contract valid saying that the onus was on the
State to prove that the necessary authority to sign the contract, for the relevant file was in its custody and the
matter was within its special knowledge. The court invoked S. 106 of the Evidence Act which says that when
any fact is specially within the knowledge of any person the burden of proving the same is upon him.

(d) Expressed in the name of President and executed on his behalf

Under Art. 299(1), a contract between the Government and a private party to be enforceable has to be
expressed in the name of the President (or the Governor) and executed on his behalf. Even though a
contract is made by a person authorised by the President (or the Governor) to make it, it is still not
enforceable against the Government if it suffers from the defect of not being expressed to be made in the
name of, and executed on behalf of the President (or the Governor). The constitutional provision regarding
the form of contract is regarded as mandatory.

(1) Bhikraj

In Bhikraj Jaipuria v. Union of India 33 no formal contracts were executed for the supply of foodgrains by the
appellant; he had merely offered to supply foodgrains by letters sent to the divisional superintendent, East
Indian Railway, and he had accepted those offers through "purchase orders". These purchase orders were
not expressed to be made in the name of the Governor-General, nor were they executed on behalf of the
Governor-General, but were signed by the divisional superintendent himself. The Court held that the
resultant contracts were unenforceable. The result was that the appellant in Bhikraj was held not entitled to
claim compensation for the foodfrains supplied by him as the contract was not in the proper form.34

The judicial view, therefore, is that a contract not expressed in the name of the President (or the Governor) is
not enforceable even though it has been entered into by an authorised person. The Supreme Court
expressed the rationale behind the strict view as follows : Art. 299(1) envisages that the state should not be
saddled with liability for unauthorised contracts. It is with this object in view that Art. 299(1) provides that the
contract must show on its face that it has been made on behalf of the state, i.e. by the Head of the State and
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executed on his behalf and in the manner prescribed by the person authorised. This provision is enacted in
public interest and invests public servants with authority to bind the state by contractual obligations incurred
for the purposes of the state. It is also in the interest of the public that the question whether a binding
contract has been made or not between the state and a private individual should not be left open to dispute
and litigation. "This consideration by itself would be sufficient to imply a prohibition against a contract being
effectively made otherwise than in the manner prescribed".

This rule has at times been judicially criticised, for a contract fully in order otherwise becomes unenforceable
only because of a single defect in form, and, thus, the rule may work very harshly at times.35

(2) Rallia Ram

In some cases, however, the rigours of the rule have been relaxed somewhat because of considerations of
practical convenience not only of the private parties entering into agreements with the Government but even
of the Government itself. For example, a contract concluded through correspondence where the acceptance
letter was signed by the authorised officer who described himself as signing on "behalf of the Government of
India" was held to satisfy the requirements of Art. 299 in Rallia Ram.36

The mere fact that the signing officer failed to mention that he was signing on behalf of the Governor-General
(now President), was not regarded as an infirmity fatal to the validity of the contract when the contract was
expressed to have been made on behalf of the Government of India. The contract was made by the Chief
Director of Purchases (Disposals), Food Department, Government of India, who had the authority to enter
into the contract and sign the same. The acceptance note of the chief director was headed "Government of
India" and the general conditions of the contract which accompanied the letter of acceptance defined
Government of India as meaning the Governor-General-in Council. The Chief Director subscribed his
signature in his official designation but did not state in the description that the contract was being executed
by him on behalf of the Governor-General. The Court ignoring the technicality stated that on a fair reading of
the correspondence, it would be reasonable to hold that the contract was executed on behalf of the
Governor-General.

(3) D.G. Factory

Again, where the contract was drawn in a formal manner and was expressed in the name of the Governor,
but was signed by the authorised officer without describing himself that he was signing "on behalf of the
Governor", the Supreme Court held the contract valid in D.G. Factory v. State of Rajasthan 37

(4) Karamshi

Ralia Ram, it appears, has to be confined to its own specific facts, for in several latter cases, the courts have
adopted a rigid view of Art. 299(1). For example, in Karamshiv. State of Bombay,38 by two letters written by
the Superintending Engineer, an agreement for the supply of canal water for irrigation of a cane farm was
reached between the State Government and the party concerned, but no formal contract in the name of the
Governor was executed. After supplying water for some time, the supply was stopped by the Government.
The letters in question mentioned the name of the Minister of Public Works Department and also the
Government in the body, in the context of the rates to be fixed, but these letters did not purport to emanate
from the Governor. At best they were issued under the directions of the Minister. It was also not clear
whether the superintending engineer who had entered into the agreement on behalf of the Government was
legally authorised to do so.

In these circumstances, the Supreme Court found that though an agreement had been reached between the
State Government and the party concerned, yet it could not be enforced because no formal document was
executed in the name of the Governor. The Rallia Ram case was distinguished.39 There the Court could
construe on a fair reading of the correspondence that the contract was entered into on behalf of the
Governor-General and expressed to be made in his name. Here the documents did not ex facie show that
the agreement was expressed to be made in the name of the Provincial Government. The Court was not
prepared to "stretch the point further, as such a construction will make the provision of S. 173(3)... nugatory".
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40

(5) Nanalal

In Nanalal Madhavji41 the plaintiff alleged a binding contract between himself and the State on the basis of
certain letters between himself and the State additional chief engineer. The High Court ruled that a contract
entered into by an official not authorised to do so, not in proper form and not entered into in the name of the
Governor, nor signed for and on behalf of the Governor, could not be regarded as an enforceable contract
because Art. 299(1) was mandatory.

(6) Om Prakash

In State of PunjabM/s.42 the Supreme Court has reiterated the well-established principle that no valid
contract between the State Government and a tenderer for any work can arise unless the acceptance letter
is signed in the name of the Governor [President]. The reason is that Art. 299(1) is not enacted merely for the
sake of form but as a matter of public policy to protect the Government against unauthorised contracts.

In the instant case, the Executive Engineer, P.W.D., accepted the tender of the respondent for construction
of a bridge and the letter of acceptance was signed by him as Executive Engineer, but not in the name of the
Governor. Later the respondent withdrew his offer. According to the PWD Code, the Executive Engineer was
authorised to enter into such a contract. Nevertheless, the Supreme Court ruled that no valid contract had
come into existence between the Government and the respondent. The Court refused to accept the plea of
the State that as the Executive Engineer had authority to accept the tender on behalf of the Governor, it must
be presumed that the contract had been entered into in accordance with the provisions of Art. 299(1).43 The
Court reiterated the proposition that Art. 299(1) had been enacted not merely for the sake of form but as a
matter of public policy to protect the government against unauthorised contracts.

(e) Service Contracts

A contract of service with the Government is not to be struck down for non-compliance with the provisions of
Art. 299.44 The reason is that once appointed, the Government servant acquires a status and his rights and
obligations are no longer determined by consent of both the parties, but by statutory rules framed by the
Government under Art. 309 of the Constitution.45

Usually, no formal document is executed between the Government and the servant and the Government
service starts with nothing more than a letter of appointment. In this context, it is necessary to regard service
contracts as falling out of the scope of Art. 299(1).

BOSE, J., in Parshotam Lal Dhingra v. Union of India 46 has stated that as a service contract with the
Government was subject to the 'pleasure' of the President/Governor under Art. 310(1) of the Constitution,47
and can be terminated at will despite an express condition to the contrary; such a contract could not be
regarded as a contract in the usual sense and, as such, a service contract should not be placed within the
purview of Art. 299(1).48

(f) Statutory Contracts

Art. 299(1) does not apply to a statutory contract, i.e., a contract made in exercise of statutory powers and
not general executive powers.49 Statutory duties and liabilities (even of a contractual nature) may be
enforced under statutory provisions without a formal contract. A distinction is thus drawn between contracts
executed in exercise of general executive powers and statutory powers.50 Thus, Art. 299(1) does not apply
when a State Government in pursuance of statutory authority under the Excise Act, grants an exclusive
privilege to any person on certain conditions for manufacturing, supplying or selling articles covered by the
Act.51

This view is also supported by the Supreme Court's pronouncement in A. Damodaran v. State of Kerala 52 A
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distinction is thus drawn between contracts executed in exercise of the executive powers and those executed
in exercise of the ordinary statutory powers. Art. 299(1) applies only to the former but not to the latter types
of contracts. " Art. 299(1) has no application to a case where a particular statutory authority, as distinguished
from the Union or the States, enters into a contract which is statutory in nature. Such a contract, even though
it is for securing the interests of the Union or the States, is not a contract which has been entered into by or
on behalf of the Union or the State in exercise of its executive powers".

In Lal Chand,53 the Supreme Court considered a contract granting exclusive privilege of liquor vending, in
exercise of the statutory powers referable to the Punjab Excise Act, and the Rules made thereunder. The
Court held that the grant of exclusive privilege gave rise to a contract of a statutory nature, distinguished
from the one executed under Art. 299(1) and, therefore, compliance with Art. 299(1) was not required in such
a case.

In Lalji,54 the Supreme Court has observed : "There is a marked distinction between contracts which are
executed in exercise of the executive powers and agreements or orders made which are statutory in nature".
Again, the Supreme Court has reiterated the proposition in Steel Authority55 that " Article 299 applies only to
contracts to be executed in exercise of "executive power" and not to those executed by virtue of statutory
power..."

The Supreme Court has clarified that only because one of the parties to the agreement is a statutory or a
public body, the contract cannot be characterised as a statutory contract. The Court has observed on this
point :56

"Every act of a statutory body need not necessarily involve an exercise of statutory power. Statutory bodies, like private
parties, have power to contract or deal with property. Such activities may not raise any issue of public law."

To the extent, the terms of a contract entered into by a statutory body are fixed by a statute, the contract may
be regarded as statutory.57

The terms of a statutory contract are binding on the Government as well as the other contracting party. The
Government cannot modify, amend or alter the terms of a statutory agreement.58

It may however be that the concerned statute itself may contain certain provisions for entering into a formal
deed similar to Art. 299(1). A very significant example of statutory contracts is furnished by liquor contracts.59

The Chief Conservator of Forests issued a notice inviting tenders for purchase of certain forest produce. The
tender of the respondent firm being the highest was accepted by the Conservator. A condition of the tender
required an initial deposit of 25% of the offer price. This deposit was not made in the instant case. Later,
when the firm resiled from the offer made by it, the forest authorities sought to enforce the obligation against
the firm. The Supreme Court in State of Madhya Pradesh and the Conservator had no power to waive the
same. In the absence of such a deposit having been made, the acceptance of the tender by the Conservator
was not valid and there was, thus, no concluded contract between the firm and the Chief Conservator, and
so the firm was under no contractual liability.

4. INCIDENTS OF A VALID CONTRACT

(a) Parties bound by contract

When there is a concluded contract pure and simple, the parties are then bound by the contract. The parties
can only claim rights conferred on them by the contract and are bound by its terms unless some statute
steps in and confers some special statutory obligations on the part of the administrative authority in the
contractual field. Once an authority enters into a contract, then the relations between the contracting parties
"are no longer governed by the constitutional provisions but by the legally valid contract which determines
the rights and obligations of the parties inter se. In this sphere, they can only claim rights conferred upon
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them by the contract in the absence of any statutory obligations on the part of the authority in the said
contractual field."61

Art. 299(2) immunizes the President or the Governor, or the person executing any contract or assurance of
property on his behalf, from any personal liability in respect of any contract or assurance made or executed
for the purpose of the Constitution, or any enactment in force relating to the Government of India. The
immunity is purely personal to the President or the Governor and does not mean the immunity of the
Government, as such, from a contractual liability arising under a contract which fulfils the requirements of Art.
299(1).62 As far as the Government is concerned, its liability under a contract is practically the same as that
of a private person, subject, of course, to any statutory provision to the contrary.63

(b) Assessing damages for Breach of Contract

A general principle of Administrative Law applicable to government contracts is that the Government being a
party to the contract cannot by itself assess damages for breach of a contract between itself and a private
party unless power to that effect is given to the Government by some clause in the contract itself, or by some
statutory provision.

In M.C. Joseph64 the appellant was the godown keeper in the Government foodgrains depot. He was held
liable for some shortage in rice. The Government decided that he should pay Rs. 2000 on this account.
When the appellant entered into service with the state, he had entered into a contract agreeing to make good
any loss which may be caused to the Government on account of his carelessness, misconduct etc. Under
this contract the Government imposed the liability on him. He challenged the Government's decision through
a writ petition and the court quashed the Government order. No doubt the contract "provides for recovery of
loss or damages" but "there is no indication anywhere in the contract as to how the Government would fix the
extent of the liability". The contract had not made the Government an arbitrator and conferred no power on it
to fix the liability. The Kerala High Court observed in the instant case : "The liability for damages and the
power to fix the extent of the damages are entirely different things". This view is based on the basic
proposition that no man can be a judge in this own cause.65

In a dispute relating to a contract, a person cannot be both a party and a judge. This rule of equity can be
displaced either by a statutory or a contractual provision authorising the Government itself to assess the
damages. The stipulation in the contract by the concerned party to make good the loss caused to the
Government by breach of the contract would not empower the Government to quantify the liability of the
other party concerned. In the instant case, there was no provision in the contract making the Government
itself a judge to decide the extent of liability.66

In State of Karnataka v. Rameshwara Rice Mills 67 a clause in the government contract authorised the
Government to assess damages in case of breach of contract. The Supreme Court interpreted the clause
restrictively as giving power to assess damages but not the power to adjudicate upon breach of contract. The
Court ruled that the power to assess damages "is a subsidiary and consequential power and not the primary
power." From such power, "right to adjudicate upon an issue relating to a breach of conditions of the
contract" could not flow.

(c) Recovering sums due

Formerly a contract between the Government and a private party usually incorporated a condition to the
following effect:

18. Recovery of Sums due :

"Whenever any claim for the payment of a sum of money arises out of or under this contract against the contractor, the
purchaser shall be entitled to recover such sum by appropriating in whole or in part, the security, if any, deposited by
the contractor, and for the purpose aforesaid, shall be entitled to sell and/or realise securities forming the whole or part
of any such security deposit.
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In the event of the security being insufficient the balance and if no security has been taken from the
contractor, the entire sum recoverable shall be recovered by appropriating any sum then due or which at any
time thereafter may become due to the contractor under the contract or any other contract with the purchaser
or the Government or any person contracting through the Secretary. If such sum even be not sufficient to
cover the full amount recoverable, the contractor shall on demand pay to the purchaser the balance
remaining due."

The question of interpretation of this clause arose in several cases and there appeared to be a difference of
opinion among the High Courts on certain aspects, and the exact scope, of this clause.

The Supreme Court taking into consideration the words "sums due", used in the heading, and "remaining
due" in the body of the clause, and reading Cl. 18 "as a whole" held in Union of India or, in other words,
which is presently payable. The clause in question does not lay down the substantive rights and obligations
of the parties under the contract. It is merely intended to provide a mode of recovery of "a claim for payment
of a sum of money arising out of or under the contract". It, therefore, postulates a claim for a sum which is
due and payable, that is, presently recoverable and could be recovered by the mode therein provided. A sum
does not become due and payable for any claim for compensation or damages for any breach of contract
unless the same has been determined and assessed under, and in accordance with the procedure,
established by law.

In Mohan Meakin Breweries v. Union of India 69 the Government claimed damages from the petitioner on
the ground of breach of contract. A general term in the contract stated that whenever any claim for the
payment of a sum of money due to the Government out of the contract arose against the contractor, the
Government would be entitled to recover such sum, firstly, by appropriating the security furnished by the
contractor; and if the security was insufficient, the sum could be recovered by appropriating any sum then
due or which might subsequently become due under this or any other contract with the Government. Acting
under this clause of the agreement, the Government estimated damages for the breach of the contract and
started adjusting the amount against other bills of the contractor.

The contractor filed a petition for a writ to restrain the Government from doing so. The Delhi High Court held
that under the clause in question, a mere claim by the Government was not a sum due unless it was
admitted by the contractor or adjudicated by a proper forum. Therefore, the action of the Government in
adjusting its claim for damages was "an executive action de hors the contract and without any right or
power," and that the Government could be restrained from adjusting its claim against other bills of the
contractor through a writ. However, the court refused to grant the petitioner's prayer asking the Government
to pay him the amount due under the other pending bills as they were not de hors the contracts relating to
the said pending bills. The proper remedy of the petitioner for this purpose was a civil suit. Subsequently,
instead of adjusting the estimated damages, the Government adopted the simple expedient of withholding
payments under the other bills till the matter of damages was finally determined either by an arbitrator or a
court.

The petitioner entered into a contract with the Government for the supply of goods. The contractor failed to
keep to the schedule. Thereupon the Government cancelled the order and claimed damages from him.
There was in the contract a clause similar to the one in Mohan Meakin Breweries.70 The Government
detained a sum of money due to the contractor for supply of goods for recovering the damages claimed
against him. The amount of damages was not quantified. That could be done only through arbitration.
Pending arbitration, the money was being withheld, and not being appropriated. The contractor moved a
petition for mandamus for quashing the order for withholding the money on the ground that it was illegal.

The Delhi High Court in N.L. Dalmia71 rejected the petition on the ground that a contractual right could not be
enforced by a writ petition. The proper remedy for a party aggrieved by the conduct of the Government under
contract was to go for arbitration, or file a suit for damages or specific performance, or simply a suit for
recovery of money due to him but he cannot maintain a writ petition. Thus, payment of money due from the
Government under a contract cannot be enforced through a writ petition.

Reference may also be made here to Air Foam Industries v. Union of India 72 another decision of the Delhi
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High Court. The petitioner supplied some goods to the Government. Some dispute having arisen under the
contract, the claim of the supplier was referred to arbitration. The contract contained the above mentioned
clause. In the meantime, the Government claimed a sum of money as general damages against the supplier
and, in case of non-payment, the Government threatened to recover the amount from the other pending bills.
The petitioner contested this and the court granted an order prohibiting the Government from doing so. The
court ruled that the clause in question did not authorise the Government to withhold payment. The court
characterised this as 'power in the nature of attachment before judgment'. As there was provision for
arbitration, pending the decision of the arbitrator, the Government could not act as a judge in its own cause.

In S. Gajinder Singh73 the High Court ruled that the clause could come into operation only when the claim of
the Government was "admitted and undisputed or is adjudicated, determined and assessed by a court or
other proper authority according to procedure established by law." Thus, a sum of money became due to the
Government only when its claim for damages or compensation was quantified by a court or other proper
authority. The court ruled that to take the view that under this clause the Government could determine and
quantify the claim against the contractor and seek to recover the same would amount to running counter to
the principles of natural justice.74

The matter has now been reconsidered by the Supreme Court in H.M. Ansari & Co. v. Union of India 75 The
Court has now ruled that under the clause in question, it was not necessary that there should be a sum of
money due and payable by the contractor to the Government; a "mere claim" would be enough. The Court
refused to issue any injunction to the Government restraining it from withholding the amount due from other
bills to the contractor. The Court said : "But certainly Cl. 18 of the standard contract confers ample power
upon the Union of India to withhold the amount and no injunction order could be passed restraining the Union
of India from withholding the amount . . ."

(d) Arbitration

Arbitration

Usually, a Government contract has an arbitration clause, viz., a clause to the effect that any dispute arising
out of the terms of the agreement shall be referred to arbitration. Such a clause is held to be binding between
the parties and the arbitration proceedings take place under the Arbitration Act, 1940.76 The courts have held
that an arbitration clause in the contract does not apply when the impugned Government action is not a part
of the agreement but is de hors the agreement.77

A contract for sale and purchase of sugar between a firm and the Central Government stipulated that all
disputes arising out of the contract should be referred to a single arbitrator to be nominated by the Secretary
in the Ministry of Food and Agriculture in his absolute discretion, and that the arbitrator's decision would be
final and binding upon the parties. Disputes arose between the parties in relation to the fulfilment of the
contract. In the meantime, the Ministry of Food and Agriculture was first bifurcated into two separate
ministries, and then the two ministries were merged again in one Ministry with two separate
departments--one of Food and the other of Agriculture.

The question was as to who could appoint the arbitrator as there was no one exactly meeting the description
in the aforesaid contract. The Supreme Court ruled in Union of India v. D.R. Revari and Co 78 that the
Secretary in the Department of Food being concerned with food quite fitted in with the description in the
contract and he could therefore appoint the arbitrator. The Court emphasized the principle that commercial
contracts must be so interpreted as to give them efficacy rather than to invalidate them on hyper-technical
grounds.79

(e) Termination of contract

In a contract between the Government and a private individual, a clause to the following effect is usually
inserted:
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The contract may be terminated by the State Government, if considered by it to be in the 'public interest' by giving one
month's notice.

In Yarlagedda China Rattayya80 the Andhra Pradesh High Court held with reference to such a clause that "it
is always open to canvass the grounds urged in justification of a contract in a court of law, and it is quite
competent for a court to review bona fides, go into the motive underlying such actions, and if the court is
satisfied that they are inadequate or insufficient, it will certainly set aside the order of cancellation of the
contract." The Rajasthan High Court considering the clause in Pusha Ram81 ruled following Yarlagedda that
"the decision of the Government that the termination of the contract by it is in 'public interest' is justiciable."

The facts of the case were : A contract for collecting royalty on quarrying of stone was granted by the state to
the plaintiff for consideration. Later it was decided to construct the Rana Sagar Dam for which large
quantities of stone were needed and on which the quarry contractor would have collected large amount of
royalty. The State thus cancelled his contract under the above clause. The contractor for the construction of
the dam then paid royalty to the State on the stone used for the dam. The ex-quarry contractor sued for
accounts under his contract. The High Court decreed the suit against the Government. The court insisted
that there must be some nexus between the cancellation of the contract and the 'public interest'. In the
instant case, the contract was cancelled without giving any opportunity of hearing to the contractor, which
was necessary in the facts and circumstances of the case.

In Re Om Prokash Pariwal,82 the Food Corporation of India appointed the petitioners as storing agents. After
some time, FCI sought to cancel the contract of agency under a clause in the agreement without giving any
hearing to the concerned party. The court declared the clause in question as unreasonable. The main ground
for this ruling was that the two parties to the agreement being unequal the clause was solely for the benefit of
the corporation. The agent did not get any opportunity to explain against the action of termination of the
agreement. For this purpose, the court mainly invoked the authority of Central Inland Water Transport
Corporation v. Brojo Nath Ganguli 83

5. CONTRACTS NOT IN CONFORMITY WITH ART. 299(1)

(a) Not Enforceable

As already stated above,84 the general proposition is that a 'contract' not in conformity with Art. 299(1) is not
as such enforceable either against the Government or the contracting party as no rights accrue thereunder in
favour of one party nor any liability is incurred by the other.85

In Chowdhry,86 as seen already, the Supreme Court refused to imply a contract between the Government
and the bidder saying that Art. 299(1) was couched in mandatory terms and, thus, ruled out all implied
contracts between the Government and another person.

but no contract was executed in accordance with Art. 299(1) and no deposit was made. A re-auction was
held and the short fall in the money was sought to be recovered from the first bidder. The court answered in
the negative as there was no contract executed between the parties concerned.87

The Supreme Court has reiterated in the case noted below88 that the question whether a contract complies
with Art. 299 of the Constitution or not is a mixed question of law and fact. Further, that the contract not in
compliance with Art. 299 is unenforceable in law and that the concerned would not be entitled to specific
performance of the contract.

(1) Murari Lal

A contract not conformable to Art. 299(1) cannot even be enforced against the officer signing the same
because of S. 230(3) of the Contract Act. Earlier, a view was expressed by the Supreme Court that when a
contract was not in proper form, and the Government could not be sued because of this technical difficulty,
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the exemption under Art. 299(2) would not apply to the officer executing the contract89 and it could be
enforced against him personally under S. 230(3) of the Indian Contract Act.90 But then, the Supreme Court
changed its view and disagreed with the Chatrubhuj approach on this point. Thus, the Supreme Court has
ruled in State of Uttar Pradesh91 that a contract not complying with Art. 299(1) being void and 'no contract in
the eyes of the law', S. 230(3) of the Contract Act could not become applicable. Here the horticulturist in the
Department of Agriculture, Government of Uttar Pradesh, negotiated with the plaintiff for storing Government
potatoes in his cold storage. The plaintiff reserved the requisite space for the purpose but no potatoes were
sent. He sued the Government and the horticulturist for the rent.

The State defence in the instant case was that there was no contract conformable with Art. 299(1) and so it
was not liable. The High Court held the horticulturist personally liable under S. 230(3), Contract Act, on the
ground that he had negotiated the entire transaction on behalf of the Government. As the Government was
not liable, S. 230(3) would apply and the horticulturist who was apparently acting as an agent of the
Government would become personally liable. On appeal, the Supreme Court held that a contract not
complying with Art. 299(1) was void. If there is no contract in the eye of law, S. 230(3) could not become
applicable. The same is true of S. 235, Contract Act.

(2) Vidhyadharan

In K.N. Vidhyadharan v. State ,92 at an auction sale for the right to collect firewood and timber from oil palm
plantation, the highest bid of the petitioner was accepted. He made the initial deposit and his bid was
confirmed by the Conservator of Forests. However, the contract in question was not expressed to be made
by the Governor but by the Government of the State of Kerala. Under the contract, the Government was the
deciding authority to determine damages if the contracting party committed a breach of the contract, and the
amount could be recovered under the Revenue Recovery Act. The Government acting under the clause
sought to recover damages from the petitioner under the provisions of the Revenue Recovery Act.

The High Court held that the Government could not do so. The clause in question did not come into
operation as the contract was not in the prescribed form. As regards invoking of the Act in question, the court
said that a mere "claim for unliquidated damages does not give rise to a debt until the liability is adjudicated
and damages assessed by a decree or order of court or other adjudicatory authority".93

(b) Voidness of Contract is Relative

The Bombay High Court has said in M. Mohammed v. Union of India 94 that a contract entered into without
complying with the requirements of Art. 299(1) is void in the sense that it cannot be enforced by either party
to the contract. But it is not void for all purposes and it can be taken into consideration and looked into for
collateral purposes. The contract can be said to exist validly for such purposes. Such a contract is thus only
relatively void, i.e., void between the parties but it is not absolutely void,

i.e., void for all purposes.1 In the words of the court : "In cases where the validity of a contract is questioned
in a collateral proceeding and for a collateral purpose by persons who have benefited by such contracts it will
have to be held that such contracts do validly exist."2

The fact situation in the above-mentioned case was as follows : the Government allotted certain premises to
a few members of the defence services because they were in service on the condition that they would vacate
the same after their retirement from service. But they refused to vacate and proceedings were started
against them for eviction under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971. The
petitioner raised the plea that the premises in question were not 'public premises' as there was no valid lease
in favour of the Government. The Government had taken the flats on lease and was paying the rent but no
lease deed had been executed between the Government and owners of the flats in question. The
Government contended that as the lease was monthly, there was no need for a registered deed under S. 107
of the Transfer of Property Act, 1882. There was some correspondence between the Government and the
lessor regarding the lease of the premises in question and the court was of the opinion that "a concluded
contract of lease can be inferred even from the correspondence or by a mere offer and acceptance." The
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premises in question was thus held to be public premises falling under the above mentioned Act.

In State3 the Allahabad High Court ruled that a lease in favour of the Government which was not registered
and was not in accordance with Art. 299, could not give rise to the relationship of lessor and lessee between
the parties and, accordingly, the Government's possession of the premises could only be that of a licensee.
The State was bound to restore the possession of the premises to the owner and pay the agreed amount per
month as compensation. This is an instance of strict application of Art. 299 to the detriment of the
Government.

Some apartments belonging to the appellant were taken on rent by the State Government for locating some
of its offices. A simple document was executed for the purpose between the appellant and a state official.
Thereafter, rent was paid to the appellant for seven years. After some time, the appellant sued the State for
arrears of

rent and for ejectment. The State argued that the so called contract was not valid because it did not fulfil the
provisions of Art. 299(1). While the High Court accepted this contention in Rawat Hardeo Singh v. State 4 it,
nevertheless, applied the Mulamchand principle5 and observed :6

. . . in all civilised systems of law, proper remedy must be provided to prevent a person from getting unjust enrichment
or unjust benefit and restitution must be allowed in all such cases so as to place the parties as nearly as possible in the
same position, as if the contract had not come into existence.

Therefore, the effect of the contract being void because of non-compliance with Art. 299 could not be to
deprive the property owner in question of the possession thereof for all time to come. The State could not be
allowed to take advantage of the plea of invalidity of the contract to remain in perpetual possession of the
property. The appellant was held entitled to restitution from the State and re-delivery of the possession of the
property and his suit for possession of the property and arrears of rent was decreed.

(c) Arbitration Clauses

Government contracts usually have arbitration clauses.7 A writing incorporating a valid agreement to submit
differences to arbitration is necessary but no formal agreement is necessary for the purpose nor is it required
to be signed by the parties. But when the Government is a party to an arbitration agreement then to be
binding, such an agreement also has to conform with the requirements of Art. 299(1). The reason is that an
arbitration agreement is also a contract and, accordingly, to bind the Government it must be made in the
form prescribed by Art. 299(1).

Even if the Government agrees to refer differences to arbitration and takes part in the proceedings before the
arbitrator, it does not mean that the Government could not later object to the arbitration award on the ground
that the arbitration agreement was not conformable to Art. 299(1). The requirements of Art. 299(1) are
mandatory, and the fact that the Government did not contend before the arbitrator that there was in law no
arbitration agreement on which the arbitrator was competent to act would not invest the arbitration
agreement with any validity. "It is from the terms of the arbitration agreement that the arbitrator derives his
authority to arbitrate; if in law there is no valid arbitration agreement, the proceedings of the arbitrator would
be unauthorized. Every contract to bind the Government must comply with the requirements of S. 175(3) [
Art. 299(1)] . . ., and waiver will not preclude the Government from pleading absence of a contract in
consonance with the law".8

In Union of India9 an application by the contracting party under S. 20 of the Arbitration Act for reference of a
dispute to arbitration under a contract with the Government was held not maintainable as there was no valid
and binding contract, the letter of acceptance of the offer of the party being signed by a person not
authorised to execute contracts for and on behalf of the President.

In Timber Kashmir Pvt. Ltd. v. Conservator of Forests 10 the Kashmir Government filed three applications
under the Arbitration Act to refer disputes arising out of three agreements between it and the appellant
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company to arbitration under the arbitration clauses of the said agreements. The company objected on the
ground that the arbitration clause was, in each case, a part of an agreement which was not duly executed in
accordance with the constitutional provision.11

The Supreme Court overruled the objection as it found the said contracts to be valid. Nevertheless, it did say
that if a contract is not validly executed according to Art. 299(1), it has no effect at all as a contract, but this
does not mean that, if a party obtains benefits on the understanding that it would abide by certain conditions,
it could not be compelled to observe those conditions such as the condition to refer disputes to arbitration.
The implications of the last statement are not clear, nor has it been commented upon in any later case. Can
these observations imply that if a party derives an advantage under a contract having an arbitration clause,
and the contract does not conform with Art. 299(1), the other party can still contend that the matter of
compensation (to which it will be entitled under S. 70, Contract Act), be referred to arbitration?

The Executive Engineer, P.W.D., invited tenders for execution of certain works. The plaintiff's tender was
accepted and the letter of acceptance was conveyed to him, but no formal contract was executed as
envisaged by Art. 299(1). Ultimately, the contract was not executed and the plaintiff sued for damages. The
State applied for stay of suit on the ground that the contract between the parties provided for reference of the
dispute for arbitration. The plaintiff argued that as no contract had been executed, the arbitration clause was
not applicable.

The High Court in State of HaryanaM/s.12 upheld the plaintiff's contention saying that Art. 299(1) being
mandatory, a contract not entered in those terms is void and cannot be given effect to by a court. When once
the main contract is void, the arbitration clause contained therein is meaningless because such a clause
provides for reference of present or future disputes to arbitration under a valid contract and when the
agreement is itself invalid the arbitration clause falls with it.

The State Government invited tenders for sinking tube wells. Plaintiff's quotation was accepted and he
executed the work without any contract having been executed between him and the State. As his claims
remained unsettled, the plaintiff filed an appeal under S. 20 of the Arbitration Act, 1940. There was no written
contract containing an arbitration clause but the plaintiff pleaded that the tenders and the quotations
contained an arbitration clause. The High Court ruled, referring to Rallia Ram,13 that the existence of the
arbitration clause could be spelt out from the correspondence and conduct of the parties.14

Here the court appears to have taken a liberal view of the matter which does not seem to be consonant with
the general judicial trend. It is not made clear in the judgement whether the requirements of Art. 299(1) were
fulfilled--as was insisted upon by the Supreme Court in Rallia Ram. The Court did not refer to this aspect of
the matter at all. Here the work was undertaken by the contractor on an emergency basis to meet the severe
drought conditions in the area. Part payment was made to him and the dispute was about the balance which
he wanted to refer to arbitration. The contractor would be entitled to compensation under S. 70, Contract Act,
even if there was no valid contract.15 The situation could perhaps be covered by the statement made by the
court in Timber Kashmir.16

In an earlier case,17 the same High Court had also exhibited a somewhat liberal trend. A tender for some
work was called by the executive engineer. The tender of the petitioner was accepted. Thereafter, an
agreement was signed but it was not strictly in the form conformable to Art. 299(1). The court held however
that the arbitration clause therein was enforceable on the ground that the executive engineer was authorized
to call the tender and accept the same on behalf of the State. The contract was signed by an authorized
officer of the Government, the Government never repudiated the contract, and the work under the contract
was done under the direct supervision of the State officers. Thus, on the facts of the case, the court ruled
that there was substantial compliance of the requirements of Art. 299(1) of the Constitution.

(d) No Ratification of an Invalid Contract

Before 1968, a judicial view was expressed that though ordinarily the Government could not be sued on
informal contracts, yet the Government could accept responsibility for the same by ratifying them. This may
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be regarded as recognition of the principle that "void" may not mean "totally void" but only relatively void, i.e.,
it may be regarded as void only for certain purposes but not for other purposes. Thus, in Chaturbhuj,18 the
Supreme Court adopted a mild attitude towards Art. 299(1). If a Government contract did not conform with
Art. 299(1), the result could be that the Government was not bound by it. But this was very different from
saying that the contract as such was void and of no effect.

The Court said : "We accordingly hold that the contracts in question here are not void simply because the
Union Government could not have been sued on them by reason of Art. 299(1)".19 Thus, the Court
specifically ruled that "there would be nothing to prevent ratification (of the contract by the Government),
especially if that was for the benefit of the Government". Even if the contract was negotiated by an officer in
excess of his authority, the Government could ratify the same and become bound by the contract. The
purpose of Art. 299(1) was described to be to dispense with proof of the due 'making and execution' of the
contract when the form prescribed was followed. In Mondal,20 the Supreme Court reiterated this view. The
Court said there that a contract not conforming with Art. 299(1) was not 'void' in the 'technical sense' that it
could not be ratified.

In Karam Chand Thapar,21 the Supreme Court expressed the view that when a contract was entered into by
an unauthorized person, it could be ratified by the Government, especially when the contract was for its
benefit.

In Laliteswar,22 while the Court called a contract not conformable to Art. 299(1) as 'void' and 'unenforceable',
it did go into the question whether it was ratified by the Government or not and found that the Government
had not ratified it. Thus, before 1968, the judicial view was that though ordinarily the Government could not
be sued on a contract not conforming with Art. 299(1), yet the Government could accept the responsibility for
it by ratifying it.23

But, in Mulamchand,24 the Supreme Court changed its view on this point and adopting a rigid stand on Art.
299(1) held that there was no question of ratification or estoppel by or against the Government in case of a
contract not conforming with Art. 299(1). The Court reiterated the view that Art. 299(1) has not been enacted
for the sake of mere form.

The Court reasoned that Art. 299(1) being mandatory, the formalities prescribed by it could not be dispensed
with. A contract not conforming with Art. 299(1) would be null and void. If the Government plea regarding
estoppel or ratification were admitted, that would mean repeal of an important constitutional provision
intended for the protection of the general public.

In State of Uttar Pradeshv. Murari Lal Bros.,25 the Supreme Court specifically said that the observations in
Chaturbhuj "have been regarded either as not laying down the law correctly or as being confined to the facts
of that case. The consensus of opinion is that a contract entered into without complying with conditions laid
down in Art. 299(1) is void". The Court was very specific that no question of ratification of such a contract
could arise because being void it was not capable of ratification.26

(e) Does Estoppel apply to such contracts?

As a general rule, when a contract between the Government and a private person does not fulfil the
requirements of Art. 299(1), it cannot be enforced against the Government even by invoking the doctrine of
estoppel.27

In Mulamchand v. State of Madhya Pradesh 28 a case involving a commercial contract, the Supreme Court
stated that where a contract between the Union of India and a private individual is not in the form required by
Art. 299(1), it is void and it cannot be enforced against the Central Government. Contravention of Art. 299(1)
nullifies the contract and makes it void as Art. 299(1) is mandatory, and, thus, estoppel could not apply in
case of contracts not in accordance with the prescribed form under the Constitution. "There is no question of
estoppel or ratification in such a case".

The Court here took an absolutist view of the matter. The Court insisted that Art. 299 has not been enacted
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for the sake of mere form but for safeguarding the Government against unauthorised contracts. Art. 299 was
embodied on the ground of public policy, i.e., protection of the general public, and these formalities could not
be waived or dispensed with. "If the plea of the respondent regarding estoppel or ratification is admitted, that
would mean in effect the repeal of an important constitutional provision intended for the protection of the
general public."29 Therefore, Art. 299(1) cannot be by-passed by invoking the doctrine of estoppel.

In N. Ramanatha30 the Government after appointing the petitioner to a civil post for a fixed period, abolished
the post before the expiry of his term. It was held that the Government cannot be estopped from abolishing
the post. The case establishes the proposition that the Government cannot be estopped from committing a
breach of its contractual obligations.

However, in a few earlier cases, the High Courts did apply the doctrine of estoppel even in the matter of
Government contracts. These were cases where a petitioner made a grievance of breach of agreement by
the State when he had done whatever he was required to do under the agreement, but there was no contract
in the form fulfilling the requisites of Art. 299(1). Here the court sought to enforce the equities which had
arisen in favour of the person concerned. The general rule was said to be that a public body was as much
bound as a private individual to carry out obligations incurred by it because the party acting on its assurance
or promise had changed his position.

In Kusheshwar Singh v. State of Bihar 31 the petitioner's highest bid at an auction for the settlement of a
ghat was accepted by the collector. He deposited half of the auction money with the Government and a
provisional permit was issued to him and he was put in possession of the ghat. He then spent large sums of
money on its improvement. Later, when the Government sought to settle the ghat in favour of another
person, the High Court quashed the Government action by issuing mandamus32 holding that equities had
arisen in favour of the petitioner who had altered his position to his prejudice acting on representation by the
concerned authorities. The Government was thus estopped from acting in such an arbitrary manner.

In Nathulal33 the State granted a right for collecting some forest produce for 10 years to the petitioner. He
made the necessary deposit and executed a contract on the prescribed form, though not fulfilling the
requirements of Art. 299(1). After some time, the State sought to cancel the contract. The petitioner filed a
writ petition challenging the Government's order on the ground that he was not given a reasonable
opportunity of having his say in the matter before cancellation of the contract. The High Court accepted his
plea and issued the writ. There was no written contract as laid down in Art. 299(1). But, nevertheless, the
High Court held on the basis of Indo-Afghan Agencies34 and Ulhasnagar35 that equities had arisen in favour
of the petitioner who had acted on the Government's promise to grant him a contract. He had done all that he
was required to do for completing the contract on his part and acted to his prejudice and detriment.

Referring to D.F.O. v. Ram Sanehi Singh,36 the Court ruled that it was a well established principle that if an
official intended to pass any order to the prejudice of a party, involving civil consequences or attaching
disability affecting his right to property, then fair play required that before passing such an order the party
concerned should be told the case against him and he should be afforded a reasonable opportunity to
represent his case before the authority concerned. The court held that, in the above mentioned cases, the
Supreme Court had definitely laid down that a High Court in its extraordinary jurisdiction under Art. 226 was
empowered to enforce the equities arising in favour of the petitioner out of the representations amounting to
a promise made to him by the Government or a public body and as a result of which the petitioner altered his
position to his prejudice, even though a contract as envisaged by the relevant provisions had not come into
existence.

Here the writ was issued because cancellation unilaterally by the Government of a contract with a private
party raised questions of estoppel and natural justice.37 What was sought to be enforced was not any
contractual right but compliance with an obligation arising as a result of a promissory estoppel.

The tenability of these High Court rulings was shaken when in Bihar E.G.F. Cooperative Societyv. Sipahi
Singh,38 the Supreme Court refused to apply estoppel when a contract conforming to Art. 299(1) was not
executed between the Government and the individual concerned. The Bihar Government agreed to settle
fishery rights with the respondent in a jalkar for two years. The respondent made the requisite deposit as he
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was required to do, but the Government changed its mind thereafter and decided to settle the fishery with a
cooperative society. The respondent sought a writ to quash the Government's order on the ground that he
had been put to considerable financial loss by this change in Government's mind. The High Court while
holding that there was no binding or enforceable contract between the Government and the respondent,
nevertheless, allowed the writ petition on the ground of promissory estoppel.

Aggrieved by this decision the co-operative society appealed to the Supreme Court which rejected the
respondent's petition. The Court held, in the first place, that the provisions of Art. 299(1) were mandatory in
character and, therefore, the respondent could not base his claim on a settlement which was not valid and
binding against the State as it was not made and executed according to Art. 299(1).

The Court ruled, in the second place, that the right to catch and carry away fish was a 'profit a prendre' and,
therefore, its sale had to be through a registered document. In the absence of a registered instrument in the
instant case, the settlement of the jalkar with the respondent could not be valid and binding.

In the third place, the Court ruled that there was no question of promissory estoppel being applied in the
situation as estoppel could not be availed of to enforce a contract against the Government not complying
with Art. 299(1). The Court referred to its opinion in Mulamchand39 where it had observed that there was no
question of estoppel where Art. 299(1) had been contravened.

The decision in Sipahi Singh40 was harsh and was based on mere technicalities. Even if the technicalities
were against the respondent, equities were in his favour. There was no valid reason for the Government to
change its mind after agreeing to grant him the rights. There appears to be no rational reason as to why the
Government may have the freedom to go back on its word when the other party has completed its part of the
bargain. How far should the Government be allowed to take shelter behind technical pleas? It is a well
established proposition that when an order is communicated, the same cannot unilaterally be revised or
reviewed by the Government. Why not this principle be applied in this area as well because the power to
enter into a contract is only a manifestation of administrative power?

The harshness of the Sipahi Singh view becomes obvious by referring to the judicial attitude in Damodaran
where the Government was the claimant and the matter was resolved in its favour.41 In Sipahi Singh, the
claim was against the Government and so it was rejected by the court. The dichotomy between the judicial
attitudes in the two cases has been formally attributed to the distinction between general and statutory
contracts--the former having to conform to Art. 299(1) but not the latter.42

The proposition that estoppel does not lie against the Government when the contract is not in the form
required by Art. 299(1) has been reiterated by the courts several times and has thus become very well
established.43 Thus, the liberal judicial view adopted by the courts in such cases as Kusheshwar or Nathulal
is tenable no longer. But, undoubtedly, these cases represent a more equitable law as they take note of the
equities arising between the Government and the private contracting parties, and seek to enforce the
equities. Such a view only appears to be an extension of the judicial view which invokes S. 70 of the Contract
Act to recompense the person from whom the Government has derived some benefit even though the
contract between them may be invalid.

The present-day judicial view is harsh and results in injustice to many unwary persons who enter into
dealings with Government officials without knowing the full implications of Art. 299(1). It should be possible
for the courts to evolve the principle that even if an agreement between the Government and a private party
has not been executed fulfilling all the requirements of Art. 299(1), but the concerned party has done all that
was required of him under the said agreement, the said contract would be enforceable. In this way, justice
and Art. 299 are both protected. A democratic Government should do justice to individuals rather than take
shelter behind technicalities.44

The law as it obtains today is anomalous : while a promise not amounting to a contract in the usual sense
may be enforceable in certain situations against the Government by invoking the principle of promissory
estoppel,45 a promise amounting to a contract may not be so enforceable only because of the reason that it
is not couched in a certain form. Thus, in the area of Government contracts, mere technicalities prevail over
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equity and justice and the law is oriented towards favouring the Government at the cost of the individual and
it cannot be defended on any rational basis.

In R.B. Jodhamal Bishen Lalv. State,46 the petitioners brought a writ petition to challenge the executive fiat
ordering that no extension would be given to forest leases. This was in violation of the promises held out to
the contractors whereupon they had altered their position much to their detriment. The High Court held the
petition to be maintainable as it was not to challenge any Government action based on any term of a contract
but to challenge the executive fiat. The court ruled that a mere assertion of change of policy in public interest
was not enough to disentitle the contractors from invoking the doctrine of estoppel. The Government must
show what exactly the policy was, what were the reasons for changing the same and how far the change
was justified, so that the court could assess for itself which way the public interest lay and what the equity of
the case demanded.

Estoppel can however apply in case of statutory contracts, or contracts by statutory bodies, as such
contracts do not fall under the purview of Art. 299(1). Reference may be made for this proposition to Gujarat
State Financial Corporation v. Lotus Hotels Pvt. Ltd. 47 The Court said there : "It is too late in the day to
contend that the instrumentality . . . can commit breach of a solemn undertaking on which the other side has
acted and then contend that the party suffering by the breach of the contract may sue for damages but
cannot compel specific performance of the contract". In the instant case, "the agreement to advance the loan
was entered into in performance of the statutory duty cast on the corporation by statute under which it was
created and set up". Mandamus was thus issued to enforce the agreement on the basis of estoppel.48

As a comment on the above discussion, it may be suggested that the judicial view that Art. 299(1) is
mandatory is too rigid, especially, in view of what has been said earlier.49 It results in placing undue
emphasis merely on form rather than on substance in the area of Government contracts and many a time
results in miscarriage of justice and loss to private parties. But, at times, even the Government suffers.50
Many a time genuine agreements arrived at bona fide between individuals and Government agencies
flounder merely because they lack compliance in one way or another with Art. 299(1).

It is arguable whether or not in the area of Government contracts the emphasis should shift from form to
substance treating Art. 299(1) as directory and of evidentiary value merely. If a contract fulfils all the
requirements of Art. 299(1), it ipso facto becomes binding. But, in other cases, the court should seek to
determine from the facts and circumstances whether a binding contract has come into existence between the
concerned parties?

If Art. 77 can be regarded as directory,51 there appears to be no reason as to why Art. 299(1) may not also
be regarded so. From a practical point of view, much more significant decisions having great consequence
for the country are taken in the exercise of executive power and are held enforceable even though not
expressed strictly in the form envisaged by Art. 77. In the area of Government contracts, the liability is only
financial and, therefore, it may be somewhat easier to adopt a more flexible view of Art. 299(1). Truly, the
only condition of consequence should be that an official authorised for the purpose should enter into the
contract in question. The other conditions are merely formal and not of much substance.52

(f) Benefit Derived under an Invalid Contract

S. 70, Contract Act

S. 70 of the Indian Contract Act runs as follows :

"Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so
gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former
in respect of, or to restore, the thing so done or delivered."

In order to protect innocent parties, the courts have held that even if a contract not in the form prescribed by
Art. 299(1) may not be binding on the Government as such, it may, nevertheless, give rise to certain equities
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which the courts may enforce against the Government. For example, if the Government derives any benefit
under any such agreement, it may be held liable to compensate the other contracting party under S. 70 of
the Indian Contract Act on the basis of a quasi-contractual liability, to the extent of the benefit received. The
reason is that it is not just and equitable for the Government to retain any benefit it has received under an
agreement which does not bind it. Art. 299(1) is not nullified if compensation is allowed to the plaintiff for
work actually done or services rendered on a reasonable basis and not on the basis of the terms of the
contract.

The courts have adopted this view on practical considerations as well. Modern Government being a vast
organisation, officers have to enter into all sorts of contracts, some of a petty nature, many a time orally or
through correspondence without strictly complying with Art. 299(1). If in such a case what has been done is
for the benefit of the Government, its use and enjoyment, and is otherwise legitimate and proper, S. 70 of the
Contract Act should step in and support a claim for compensation made by the contracting party against the
Government notwithstanding the fact that the contract had not been made as required by Art. 299(1).

If S. 70 is held to be inapplicable in regard to such dealing by Government officers, it would lead to extremely
unreasonable consequences and may even hamper the day to day working of the Government. Like ordinary
citizens, even the Government should be subject to the provisions of S. 70. As the Supreme Court has stated
in Mulamchand :53"If money is deposited and goods are supplied or if services are rendered in terms of the
void contract, the provisions of S. 70, Indian Contract Act, may be applicable."54

The basis of S. 70, Indian Contract Act, is the equitable doctrine of restitution55 and not any implied contract.

(1) Mondal

The question of relationship between Art. 299(1) and S. 70 was discussed rather elaborately by the Supreme
Court in State of West Bengal a contractor, executed some construction works on the request of a
sub-divisional officer who had accepted his tender. The building was constructed and accepted by the
Government but the contractor was not paid. The Government denied its liability to pay on the ground that
the request in pursuance of which the said construction was made was invalid and unauthorized and that
there was no contractual privity between itself and the respondent. There was no contract fulfilling the
requisites of Art. 299(1), and enforceable as such. When the respondent was not paid, he filed a suit against
the Government for the recovery of the amount.

The question before the Supreme Court was whether, in the absence of a valid contract, the respondent
could be compensated under S. 70, Contract Act, for the work done by him. The Court held that though the
contract as such was unenforceable as it did not fulfil the requirements of Art. 299(1), nevertheless, the
Government was held liable to pay under S. 70, Contract Act, on a quasi- contract, for the work done by the
contractor and accepted by the Government. Dilating upon the nature of S. 70, and the basis of the liability
thereunder, the Court stated that there are three conditions to be fulfilled before S. 70 can be invoked,
namely :

(1) A person should lawfully do something for another person or deliver something to him.
(2) In doing so, he must not intend to act gratuitously.
(3) The other person for whom something is done or to whom something is delivered must enjoy
the benefit thereof.

If these three conditions are satisfied, S. 70 imposes upon the latter person the liability to make
compensation to the former in respect of, or to restore, the things done or delivered. In the instant case, all
the three elements of S. 70 were satisfied and so the Government was held liable to pay to the plaintiff.

The Court explained the nature of S. 70 as follows. This provision does not deal with the rights and liabilities
of the parties accruing from a contract. It deals with the rights and liabilities accruing from relations which
resemble those created by contract. Thus, in cases falling under S. 70, the person doing something for
another, or delivering something to another, cannot sue for the specific performance of the contract nor can
he ask for damages for the breach of the contract for the simple reason that no valid contract exists between
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the parties. All that S. 70 provides is that if the goods delivered are accepted, or the work done is voluntarily
enjoyed, then the liability to pay compensation for the enjoyment of the said goods or the acceptance of the
said work arises.

In the words of the Court : "Thus, where a claim for compensation is made by one person against another
under S. 70, it is not on the basis of any subsisting contract between the parties, it is on the basis of the fact
that something was done by the party for another and the said work so done has been voluntarily accepted
by the other party."57

Referring to the word 'lawfully', the Court said that, undoubtedly, between the person claiming compensation
and the person against whom it is being claimed, some lawful relationship must subsist. But this lawful
relation arises not because the party claiming compensation has done something for the party against whom
the compensation is claimed but because what has been done by the former has been accepted and
enjoyed by the latter. It is only when the latter accepts and enjoys what is done by the former that a lawful
relationship arises between the two and it is the existence of the said lawful relationship which gives rise to
the claim for compensation.

S. 70 deals with cases where a person does a thing for another not intending to act gratuitously and the
other enjoys it. It means that when a thing is done or delivered by one person it must be open to the other
person to reject it. "Therefore, the acceptance and enjoyment of the thing delivered or done which is the
basis for the claim for compensation under S. 70 must be voluntary." The basis of S. 70 is the equitable
doctrine of restitution and not any implied contract.

In the second place, the Court dilated upon the relationship between S. 70 and Art. 299(1). S. 70 in no way
detracts from the binding character of Art. 299(1), nor does it amount to circumvention of Art. 299(1) in any
way. The cause of action for the respondent's claim under S. 70 is not any breach of any contract by the
appellant Government. In fact, the claim under S. 70 is based on the assumption that the contract in
pursuance of which the respondent has supplied the goods or made the construction in question is
ineffective and, as such, amounts to no contract at all. The cause of action for claim for compensation under
S. 70 is based not upon the delivery of the goods, or the doing of any work as such, but upon the acceptance
and enjoyment of the said goods or the said work and thus S. 70 does not treat as valid the contravention of
Art. 299(1). Thus, S. 70 does not nullify Art. 299(1). In fact, S. 70 may be treated as supplementing the
provisions of Art. 299(1).

Claims based on a contract validly made under Art. 299(1) are distinguishable from claims for compensation
under S. 70. In recognising the claim for compensation under S. 70, the court does not directly or indirectly
nullify the effect of Art. 299(1) or treat as valid a contract which is invalid. "The fields covered by the two
provisions are separate and distinct : Art. 299(1) deals with contracts and provides how they should be
made. S. 70 deals with cases where there is no valid contract and provides for compensation to be paid in a
case where the three requisite conditions prescribed by it are satisfied." There is thus no conflict between the
two provisions. On the other hand, S. 70 may be read as supplementing the provisions of Art. 299(1). What
S. 70 prevents is unjust enrichment and it applies as much to individuals as to corporations and Government.

In the third place, the Court emphasized that it is necessary to invoke S. 70, both as a matter of
administrative convenience as well as justice to the people. Government officials may have to act at times
without strictly complying with Art. 299(1). Therefore, if what is done is for the benefit of the Government and
for its use and enjoyment and is otherwise legitimate and proper, S. 70 would step in and support a claim for
compensation made by the contracting parties notwithstanding the fact that a contract has not been made as
required by Art. 299(1). If S. 70 is held inapplicable to such dealings by Government officers it would lead to
extremely unreasonable consequences and may even hamper, if not wholly bring to a standstill, the efficient
working of the Government from day to day. Like the ordinary citizens even the Government ought to be
subject to S. 70. "What S. 70 prevents is unjust enrichment and it applies as much to individuals as to
corporations and Government."58

The Mondal principle has been reiterated and applied in a number of subsequent cases.59 Coal was supplied
by the appellant to the railways. The contract between the parties did not comply with Art. 299(1). When the
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price of coal remained unpaid, the appellant sued the Government of India for the price of the coal.
Decreeing the suit, the Supreme Court said; "if in pursuance of the said void contract, the appellant has
performed his part and the respondent has received the benefit of the performance of contract by the
appellant, S. 70 would justify the claim made by the appellant, against the respondent."60

The plaintiff excavated a tank under the small irrigation scheme under which the beneficiaries contributed 55
percent share of the cost and the Government 45 percent. The High Court held the plaintiff entitled to claim
compensation from the Government to the tune of its liability.61

The Government of India supplied some steel to the respondent company for manufacturing gas plant at
Rampur. At part of the steel so supplied was utilised by the company; it delivered the rest to another concern
G., under instructions from the steel controller. When the amount due remained unpaid by G., the company
sued the Government for payment. The Supreme Court ruled in Union of India v . J.K. Gas Plaint62 that the
Government was liable to pay under S. 70 of the Contract Act as it derived full benefit from the delivery of the
steel to G., who held the materials on behalf of the Government, and so all the conditions laid down in S. 70
were fulfilled.

The appellant carried out the work of making additions and alterations to the State hospitals. He was paid
various amounts from time to time for the work done, but when the balance remained unpaid, he brought a
suit against the Government to recover the same. The Supreme Court in Pannalalv. Deputy Commissioner63
held the Government liable to pay under S. 70 of the Contract Act as the State had received the benefit of
the work done by the appellant. In another case,64 the respondent was the highest bidder at a Government
auction to sell standing timber in a certain area. In due course, the sale was confirmed. He deposited the
entire bid amount and started cutting the trees. Due to disputes between him and the Government regarding
the scope of the contract, the Government not only did not permit him to remove the timber which he had cut
and stacked, but even seized the same. Later, the Government sold away the timber to another party for a
large sum of money. The respondent sued the Government for damages but the High Court dismissed his
suit.

There was no written contract between the parties. As Art. 299(1) had not been complied with there was no
enforceable contract and, therefore, no property in the timber passed to the bidder. Before a contract of sale
can come into existence, there has to be an enforceable agreement between the Government and the
plaintiff. This means a contract conformable to Art. 299(1). In the instant case, there was no such contract
and so the title in the trees remained with the Government. S. 70 was held inapplicable as the contractor
neither did something for the State nor delivered the timber to the State not intending to do so gratuitously.
But it is arguable as to why the bidder could not recover the deposit made by him and the cost of the labour
expended by him in cutting the trees as he never intended to make a gift of these amounts to the State which
did benefit to that extent.

In the same way, if under an invalid contract with the Government, the contracting party has obtained any
benefit from the Government, he can be sued by the Government for the dues under S. 70, Contract Act
though the contract did not conform to Art. 299.65 The Supreme Court has said : "The right here is not
peculiar to equity or contract or tort, but falls naturally within the important category of cases where the court
orders restitution if the justice of the case so requires."

In an auction for the grant of a licence for one year to sell country liquor and bhang, the petitioner was the
highest bidder. Because of certain interim orders passed in some writ petitions, this bid could not be
accepted, but an agreement was arrived at between the petitioners and the district excise officer, under
which the petitioners were allowed to run the shops temporarily on daily payment basis in accordance with
their bid amount until the writ petitions were finally disposed of. The petitioners started the shops but
defaulted on payment as agreed. When the Government gave notice to recover the arrears as land revenue,
the petitioners moved a writ petition against the Government not to enforce the said notice on the ground that
as no contract had been executed in writing in accordance with Art. 299(1), the said agreement was not
enforceable. But the court rejected this argument as the petitioners had derived benefit under the said
agreement by actually running the shops.66
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(2) S. 65 Contract Act

In some situations, S. 65 of the Contract Act has also been invoked in this regard. Section 65 runs as :
"When an agreement is discovered to be void or when a contract becomes void any person who has received any
advantage under such agreement for contract is bound to restore it or to make compensation for it to the person from
whom he received it."

The basis of S. 65 is the equitable doctrine of restitution and not any implied contract. If the Government has
made any payments under a void contract, it can recover the same under s. 65 of the Contract Act. Where a
contractor entered into an agreement with the Government to construct a godown and received payment for
the purpose, but did not complete the work, the Government cancelled the contract and filed a suit for
realising the amount advanced. The Court held that although the contract was void from its very inception as
it was not in conformity with Art. 299(1), the Government could recover the amount advanced to the
contractor under S. 65 of the Contract Act.67 The Court ruled that S. 65 covered an agreement which was
void ab initio such as a government contract not complying with the requirements of Art. 294(1).68

In P.C. Wadhwa v. State of Punjab, 69 the defendant applied for the post of stipendiary probationer for the
Superior Forest Course at the Indian Forest College, Dehra Dun. He was selected by the Punjab Public
Service Commission and he completed the training at Dehra Dun. The advertisement had required the
selected candidate to serve the department for at least five years, otherwise to refund the money spent on
his training and education. But, in fact, no bond was signed by him. He prematurely left the college without
the Government's sanction and was selected in the Indian Police Service.

The Government sought to recover the amount spent on him.

The Government filed a suit to recover the amount under S. 70 of the Contract Act. The defendant-appellant
contended before the High court that S. 70 was inapplicable on two grounds : first, no agreement was
executed in writing as required under Art. 299 of the Constitution; second, he had received no benefit from
his training at the college. The High Court applied the Supreme Court ruling in State of West Bengal v. B.K.
Mondal and Sons 70 and Mulam Chand v. State of Madhya Pradesh. 71 S. 70 would apply even where Art.
299 has not been complied with and there is no valid agreement, provided its requirements have been
squarely met. Section 70 was held applicable in the instant case because the Government had spent money
on giving him a stipend during the training period and college fees. Furthermore, he had the option to "refuse
to have the training". Thus, the training imparted to the defendant-appellant was neither gratuitous nor
unlawful under S. 70. The training was not thrust upon him. He had the option to refuse to have the training
but he did not do so.72

6. CONTRACTS AND STATUTORY DISCRETION

At times, questions arise concerning the relationship between contracts and statutory discretion. How far can
the existence of a contract control the exercise of statutory power by the concerned authority?

The State Electricity Board functions under the Electricity (Supply) Act, 1948. Under S. 49(3), the Board has
power to fix special tariff for a consumer. In exercise of the power, the Board entered into an agreement with
the petitioner-consumer stipulating for a special concessional tariff for supply of electricity for 25 years with
effect from 1957. The board has also been given by its parent statute [ S. 49(1)] a general power to fix
uniform rates of electricity from time to time. Under this power, in 1971, the board fixed new enhanced rates
for electricity and sought to apply the same to the concerned consumer as well in breach of the contract with
him.

The important question thus was whether the contract was binding on the board and the board was not
entitled to act inconsistent with the contract or whether the contract was to be regarded as invalid on the
basis that it constituted a fetter on the board's discretionary power to fix the rates from time to time.73
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The board's argument was that, under the law, it had power to fix tariffs for supply of electricity; that it had to
exercise that power for the public good and, therefore, no agreement could hinder or fetter the future
exercise of that power. Therefore, argued the board, it was entitled to enhance the rates notwithstanding the
agreement whenever it felt that the rates agreed upon were uneconomical and were causing it loss.

The Kerala High Court, before which the matter came first by way of a writ petition, in Indian Aluminium Co.
v. K.S.E. Board, 74 upheld the board's contention by invoking the proposition that "there can be no estoppel
against the provisions of a statute or the exercise of statutory power."75 Thus, the High Court took the view
that the contract between the board and the consumer concerned could not estop the board from exercising
its statutory discretionary power which was vested in it for the public good.76 Undoubtedly, the proposition
was too broadly formulated as there can be circumstances when estoppel may apply against statutory
bodies in respect of exercise of discretionary power by them.77 Such a bland statement by the Kerala High
Court cannot now be accepted.

In a parallel case, Indian Aluminium Co. v. O.S.E. Board, 78 'the Orissa High Court also rejected the petition
of the consumer petitioner saying that the said agreement was the outcome of the negotiations between the
parties and that there was no representation made by the board to the consumer, and so no promissory
estoppel could apply against the board. But the Orissa High Court did accept the petitioner's contention that
the agreement was binding on the board and it could not act contrary to it.

The matter then came before the Supreme Court in appeal. In Indian Aluminium Co. v. K.S.E. Board, 79 the
Court rejected the board's contention that it could unilaterally enhance electricity rates in spite of any contract
it might have entered into. The Court did not go into the question of estoppel as such as had been done by
the two High Courts but considered the question whether the board could be kept to its agreement. The
Court held that the contract between the board and the consumer was binding. The Court argued that under
its parent Act, the board had power to enter into an agreement with the consumer to supply electricity at
special rates. This by itself could be regarded as a power to fix rates. The Court recognised that there was
the well-established principle of non-fettering of statutory discretion by a contract in general terms.80 But this
principle would be attracted when an attempt was made to fetter in advance the future exercise of statutory
powers otherwise than by the valid exercise of a statutory power. The position would be different where a
statutory power is exercised to enter into a stipulation with a third party fettering the future exercise of other
statutory powers where such stipulation is made not as a part of "private contract in general terms", but in
exercise of a statutory power.

The reason for this proposition is as follows : if the exercise of the statutory power to enter into contracts can
be held to be invalid as a fetter on the future exercise of other statutory powers, then it will render the
statutory power to enter into contracts meaningless and futile; the existence of the statutory power would be
nullified which will be contrary to all canons of construction. If the statutory power is to have any meaning
and content, the stipulation made in exercise thereof must be valid and binding and it will exclude the
exercise of other statutory powers in respect of the same subject-matter.

Thus, according to the Supreme Court, the main distinction lies in the following. If a public authority enters
into a stipulation in a contract under its general powers then it cannot fetter the future exercise of a statutory
power. But if it does so in exercise of a statutory power, the stipulation would be valid even though it fetters
subsequent exercise of the same statutory power, or future exercise of another statutory power. "The
exercise of such statutory power would pro tanto stand restricted".81

The Court justified this view on the principle of harmonious construction. To permit a statutory body to
denounce the stipulation as a nullity and claim to exercise its statutory power in disregard of it, would mean
that the stipulation has no binding force and that the authority has no statutory power to enter into such
stipulation. But that would be plainly contradictory to the premise on which the argument is based. In the
instant case, the contract was entered into by the board under its statutory power to fix the special tariffs.
There could thus be no question of such a stipulation being void as fettering or hindering the exercise of
statutory power; in fact, this itself represented the exercise of the statutory power to fix tariffs. It was,
therefore, not competent for the board to override the agreement and enhance the charges in breach thereof.
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This decision seeks to clarify the scope of the power of statutory authorities to enter into binding contracts. In
the instant case, the consumer established his factory because of the availability of cheap electricity. Without
this important concession, he might not have established the factory at all at that place, because production
of aluminium consumes a lot of electricity. If now the board were allowed to escape its contractual
obligations, then it would have meant that no one could depend on a contract with a statutory body (or with
any other governmental body for that matter), and plan on that basis. This would have proved to be a
regressive factor in the process of industrialization. There was no other remedy open to the petitioner in the
instant case for if the contract were to be held as non-binding, he could not have sued the board in damages
for infringing the contract.

A term in a contract between a consumer and the electricity board making the consumer liable for the cost of
replacement of the transformer if it was stolen in rural areas outside his premises was held to be unlawful in
U.P. State Electricity Boardv. Smt. Lakshmi Devi Sehgal.82 The board was a statutory body. Under the
relevant statutes, the board was not entitled to demand the replacement cost of the transformer. The said
condition was thus held to be void as being against public policy as it was "so obviously inimical to the
interests of the community that it offends almost any concept of public policy."

7. GOVERNMENT CONTRACTS & CONSTITUTIONAL RESTRICTIONS

Since 1979, there have been far reaching developments in the law relating to government contracts outside
Art. 299. The year 1979 can be regarded as a watershed in this area.

Art. 299 in itself has a very limited range, viz., it lays down only some formal rules regarding such mundane
matters as how a contract between Government and a private person is to be executed, or expressed, and
who can enter into such a contract on behalf of the Government? But Art. 299(1) does not say anything as to
how its executive power to award contracts is to be exercised by the Government? Is the Government free to
award a contract to any one it likes or whether there are any limitations subject to which this power is to be
exercised? To what extent can there be judicial review of award of government contracts under Art. 226?

(a) Award of contracts

Before Airport

Arts. 14 and 19(1)(g) of the Constitution83 do not apply to a contractual relationship pure and simple.
However, the question of applying Art. 14 at the threshold i.e. when a contract is being entered into between
a private party and a Government or its agency has assumed significance over the years.

Formerly, the tendency of the courts by and large was to concede to the Government an extremely broad
discretion to choose the party with whom it would wish to enter into contractual relationship on the ground
that the Government enjoyed the same freedom in the matters of contract as was enjoyed by any private
party. The courts followed the general principle that just as a private party is free to enter into a contract with
any one it likes, so the Government was free to enter into a contract with any one it liked. The courts
displayed great reluctance to interfere with Government discretion to award contracts.

(1) Achutan

The matter of Government rights in the case of a contractual relationship was placed at its highest by the
Supreme Court in the following formulation in an early case, C.K. Achutan v. State of Kerala. 84 The
Government cancelled a contract between itself and the petitioner for the supply of milk in pursuance of its
policy of awarding such a contract to a co-operative society. This was challenged through a writ petition by
the petitioner under Arts. 14, 19(1)(g) and 31 of the Constitution on the ground that there had been
discrimination against him.85 Rejecting the writ petition, the Supreme Court observed :
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The gist of the present matter is the breach, if any, of the contract said to have been given to the petitioner which has
been cancelled either for good or for bad reasons. 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 chosen rather than another, the aggrieved party cannot claim the protection of Art. 14,
because the choice of the person to fulfil a particular contract must be left to the Government. Similarly, a contract
which is held from Government stands on no different footing from a contract held from a private party. The breach of
the contract, if any, may entitle the person aggrieved to sue for damages or in appropriate cases, even specific
performance, but he cannot complain that there has been a deprivation of the right to practise any profession or to
carry on any occupation, trade or business, such as is contemplated by Art. 19(1)(g). Nor has it been shown how Art.
31 of the Constitution may be invoked to prevent cancellation of a contract in exercise of powers conferred by one of
the terms of the contract itself."86

In Achutan, the Supreme Court refused to issue mandamus87 to the Government to enforce liability arising
out of contract arguing that a contract normally creates a private right and not a public right. A manifestation
of the Government's freedom of contract was the rule; that Government had freedom to deal with anyone it
chose. Thus, the Government could enter into a specific contract with anyone it wanted and it was not bound
to accept the highest bid at an auction, or the lowest tender for execution of any work. When the Government
chose one person over another to enter into a contract, the aggrieved party could not claim the protection of
Art. 14 because the choice of the person to fulfil the particular contract must be left to the Government.

In Thomas, an earlier Kerala case,88 a person was blacklisted from submitting any tender or taking any
government work for 10 years without being given any hearing. When he challenged the order, the High
Court by a majority rejected the petition saying that no one had a fundamental right to insist upon the
Government any more than a private individual, doing any business with him as "the Government, like any
private individual, has got the right to enter or not to enter into a contract with a particular person."

Of greater significance in this case, however, is the prophetic dissenting opinion of MATHEW, J., (which was
destined to become the prevailing norm in course of time and to be cited often) who held the government
decision invalid on the ground of failure of natural justice to the petitioner. The Judge insisted that blacklisting
involved not only economic loss but also of reputation and standing in the business world.89 MATHEW, J.'s
classic statement which came to be generally accepted later on was : " A democratic Government cannot lay
down arbitrary and capricious standards for the choice of persons with whom alone it will deal."

(2) Rasbihari

Reference may also be made here to Rasbihariv. State of Orissa,90 a Supreme Court judgment, which at the
time seemed to step out of the generally held judicial view. The Orissa Government acquired the monopoly
of trade in kendu leaves. A statutory provision left the method of sale or disposal of kendu leaves to the
Government as it thought fit. The Government invited offers for purchase of kendu leaves only from the
purchasers during the previous year, and who had carried out their obligations to the satisfaction of the
Government. This excluded other kendu leaves traders from bidding. This mode was preferred by the
Government to an open competition. The method of sale by open competition was given up and this was
challenged.

The Supreme Court held that the government action was discriminatory. The classification of purchasers was
not based on any real and substantial distinction bearing a just and reasonable relation to the object sought
to be achieved, i.e., effective execution of the monopoly in the public interest. Exclusion of all persons
interested in the trade, who were not in the previous year licensees, was ex-facie arbitrary; it had no 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 State cannot act
arbitrarily in selecting persons with whom to enter into contracts.

But much of the impact of Rasbihari was diluted by the Supreme Court itself in Trilochan Mishrav. State of
Orissa.91 The Government did not accept the highest bids for the sale of Kendu leaves. Instead, the persons
making lower bids were asked to raise their bids to the level of the highest bids and were given contracts.
There was thus no loss to the State revenue. The Court held that the refusal to accept the highest bids could
not be the cause of any complaint as the Government could have preferred one tenderer over another.
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(3) G.E. & E.Co.

In G.E. &E. Co. v. Chief Engineer, 92 the Government awarded a contract for executing some work to a
person other than the person with the lowest tender. He alleged that discrimination had been made against
him and that preferential treatment was accorded to a Government-owned company whose chairman was
also the chairman of the Government stores purchase committee. The High Court rejected the contention
saying that when the Government chose one person rather than the other, the aggrieved party could not
claim the protection of Art. 14 because the choice of the person to fulfil the particular contract must be left to
the Government. "It is perfectly open to the Government even as it is to a private party to choose a person to
their liking to fulfil a contract which they wish to be performed."

A similar judicial attitude was revealed in T.M. Peer Mohammed v. D.F.O. Tenmala .93 In a forest auction,
the petitioner was the highest bidder and his bid was accepted, subject to confirmation. The bid was not
confirmed; the auction was cancelled and a re-auction ordered. He challenged the Government's action
contending that it was contrary to administrative instructions, but the High Court rejected the challenge,
holding that (i) since his bid had not been confirmed, the petitioner acquired no right to any property or to
compel performance of the contract; (ii) a writ petition could not lie for enforcing administrative instructions,
as these instructions are meant for the guidance of the officers and confer no right on the citizen;94 and (iii)
ordinarily Government was free to deal with anyone it chose and none could complain that his right had been
infringed because the Government chose to deal with someone else and not him. "It is perfectly open to the
Government even as it is to a private party to choose a person to their liking to fulfil a contract which they
wished to perform."

The High Court, however, did mention a few exceptions when it could entertain a challenge, i.e. : if
Government acts mala fide in the sense prejudicial to the interests of the State causing loss of revenue, or in
a manner promoting nepotism and

corruption, or when there is a violation of a mandatory statutory provision. In such cases, the court would
entertain the petition not so much to secure any rights of the petitioner but in the larger interests of the State.

For granting lease of some government land, the selection of co-operative societies was violating the
relevant administrative directions. When the petitioner society challenged the selection, the court held that
the lands in question being government property over which it had absolute powers of disposal, the petitioner
society had no legal right at all to claim that it should be granted a lease and that it had no locus standi to
seek any reliefs under Art. 226 in this matter.1

The last case worth-noting in this connection is Puruxotoma Ramanata Quenim v. Makan Lalyan Tandel .2
The Government invited tenders for leasing its distillery for a specified period. One of the terms of the tender
was that the highest tender "shall ordinarily be accepted but the Government reserves the right to select any
tender or reject all tenders without assigning any reasons therefore." The Government did not accept the
highest tender but granted lease to the next higher tenderer for an amount, after negotiation with him, which
was higher by Rs. 1000 than the highest tender. This was challenged on the ground that the Government
was bound to give reasons for rejecting the highest tender and the term in the tender was void under Art. 14
as it enabled the Government to reject the highest tender without assigning any reason. The Goa Judicial
Commissioner ruled that the Government could reject the highest tender but it should assign good reasons
for doing so and that it could not act in a discriminatory manner.

On appeal by the Government, the Supreme Court overruled the Judicial Commissioner saying that the
question of validity of the clause in question, and grant of lease in favour of the second highest tenderer were
not res integra as these questions were concluded by Achutan,3 and several other cases.4 Accordingly, the
Court ruled that the clause in question was not violative of Art. 14,5 and in matters of contract, the
Government was not bound to accept the highest tender. The Court noted that no allegation of mala fides
had been made against the act of the authorities in granting lease, nor had the act been shown to be vitiated
by "any such arbitrariness as should call for interference by the court."6

The above rulings show that the courts conceded practically unlimited discretionary power to the
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Government to enter into contracts with whomsoever it liked and the courts did not seek to impose any
restrictions on Government's discretion in this respect. But this position was entirely unsatisfactory. The
Government today has enormous economic power in its hands; it has immense capacity to confer economic
benefits on the people, as it is the biggest buyer of goods and services in the country. This raises the
possibility of exercising of power by a government to dispense largess in an arbitrary manner. It is axiomatic
that the government or any of its agencies ought not to be allowed to act arbitrarily and confer benefits on
whom so ever they please. Therefore, it is necessary to develop

some norms to regulate Government's discretion, for basically the Government exercises an administrative
power when it enters into a contract with someone, and

also because Government should always act as a Government and not as a private trader. The Government
should also be bound by fair trade practices. It was said in a previous edition of this book :
"The Government has always to act as a Government and not as a private trader. Even if a person may not claim a
fundamental right to do business with the Government, he can certainly claim to be treated in a fair and a
non-discriminatory manner . . . A party can be ignored for such reasons as lack of resources, business credibility, etc.,
but not on completely irrelevant grounds . . ."7

At another place, it was said by the author :8

". . . Government should always act as a Government and not as a private trader. The analogy drawn between the
Government and a private trader in this area is irrelevant. Even if a person may not claim a fundamental right to do
business with the Government, nevertheless, he has a right to be treated fairly and in a non-discriminatory manner and
at par with others . . . The Government should also be bound by fair trade practices."

(4) Eurasian Equipment

To a limited extent, the Government's broad powers to enter or not to enter into a contract with any person
came to be subjected to one restriction by the courts. As seen earlier,9 the Supreme Court in Eurasian
Equipment10 invoked Art. 14 to impose on the Government the requirement of giving a hearing to the person
who was being blacklisted by it for entering into contractual relationship. The Court had stated in Eurasian
that "the government is not and should not be as free as an individual" in the matter of entering into contracts
and that "whatever its activity, the government is still the government.

Reiterating the proposition in Joseph Vilangandan v. Executive Engineer 11 where the executive engineer
sought to blacklist a government contractor for failing to execute a contract, the Supreme Court ruled that
blacklisting had the effect of preventing the person concerned from the privilege and advantage of entering
into lawful relationship with the Government for purposes of gain and so there must be hearing before
passing the order to that effect.

The Bombay High Court applied the same principle in State Bank of India v. Kalpaka Transport Co. 12 The
court ruled that blacklisting of any one for entering into a contract did raise problems under Art. 14.
Therefore, while blacklisting a transport company and refusing to enter into any contractual relation with it,
the bank must act according to natural justice. Said the Court :
"As the horizon of the State's activities is expanding in the modern welfare state, judicial concepts are being remodelled
to suit new situations, if the State's organ is vested with powers, the concept of contract is being replaced by
constitutional obligations. If at the threshold of a deal, a citizen is to be discriminated against, aid of the principles of
natural justice is invited to safeguard the legitimate expectation of the citizen."13

This principle was not, however, extended to termination of contract by Government.14

(b) Airport Case

Much of what has been said above in relation to government contracts has undergone a sea change as a
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result of the trend-setting pronouncement of the Supreme Court in the landmark case Ramana Dayaram
Shetty v. International Airport Authority (Airport case) in 1979.15 The great importance of this case lies in the
fact that it seeks to regulate government discretion in a newly developing area, viz., award of contracts,
conferment of government largess and benefits, and disposal of public property.

The courts have now shed their passive attitude in this area as a realisation has dawned on them that a
welfare state exists for the welfare and common good of the largest number of people, and not for the good
only of the favoured few, and that the state does not enjoy the same freedom as a private person does
because a government is always a government subject to rule of law in all its activities.

As stated above, in modern times, the government is increasingly assuming the role of the dispenser of a
large number of benefits, such as, jobs, contracts, licences, quotas, mineral rights etc. More and more wealth
of an individual consists of these new forms of property. Some of these forms of wealth may be in the nature
of rights, but most of them are in the nature of privileges. This raises the possibility of an arbitrary exercise of
power in the matter of conferring benefits on individuals. There is thus need to develop some norms to
protect individual interest in such wealth and to ensure that Government does not act in this area in an
arbitrary and discriminatory manner.

The importance of Ramana (Airport) lies in this direction. Ramana has made a dent in an area which has
traditionally been regarded hitherto as being purely discretionary. The position now is that the executive
power of a government to award contracts would be subject to Art. 14 of the Constitution. This means that
the Government no longer enjoys absolute discretion to enter into contract with any one it likes : "The
Government is not and should not be as free as an individual." The Government has to choose the party in a
non-discriminatory manner. The Government cannot discriminate between individuals in the matter of
awarding contracts. The Government must act fairly and make a choice of the contracting party by affording
equal opportunity to all contenders by examining their claims fairly. No government can award contracts in
an arbitrary or discriminatory manner. Accordingly, the principle of non-discrimination contained in Art. 14 of
the Constitution has come to be applied by the Supreme Court to this area.

As formulated by the Supreme Court itself, the following interesting but significant questions arose in
Ramana :

(1) What are the constitutional obligations of the Government when it takes action in exercise of its
statutory or executive power?
(2) Is the Government entitled to deal with its property in any manner it likes or award a contract to
any person it chooses without any constitutional limitations upon it?
(3) What are the parameters of its statutory or executive power in the matter of awarding a contract
or dealing with its property?
(4) When the Government invites tenders for a contract subject to certain terms and conditions, is
the Government entitled to by-pass those conditions and accept a tender of a person who does
not fulfil those conditions?

The great relevance of these questions can be seen from the fact that in modern times, Government is the
source of much wealth.16 Many individuals and businesses enjoy largess in the form of government
contracts. Does the Government have absolute discretion to confer any benefit on any one it likes or should
some norms be developed to regulate and discipline government discretion to confer such benefits?

These questions were raised before the Supreme Court in the Airport case. Therefore, the question whether
or not persons dealing with the Government enjoy any legal protection or not assumes great significance.
Can the State withhold, grant or revoke a contract at its pleasure? Is the Government in the same position in
this respect as a private person? Generally speaking, in the Airport case, the Supreme Court answered
these questions in the negative. The Court ruled that the Government cannot exercise its discretion in an
arbitrary manner or at its sweet will and that the government action must be based on standards which are
not "arbitrary or unauthorized".

The factual matrix of the Airport case may be stated briefly : The International Airport Authority, a statutory
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body set up under a parliamentary statute, issued a notice on January 3, 1977, inviting tenders for running a
second class restaurant at the Bombay Airport. The Authority prescribed certain norms of eligibility for the
tenderer.

The Authority awarded the contract to one Kumaria whose tender was the highest and who appeared to
satisfy all the conditions mentioned in the notice inviting tenders. Kumaria then took necessary steps by way
of purchase of necessary equipment (coolers, crockery, etc.) for running the restaurant.

The Authority failed to hand over possession of the premises to him as the previous contractor (Irani) running
the restaurant did not vacate the premises although his contract with the authority had come to an end.
There was some litigation between Irani and the Authority but Irani did not succeed. Then one Ramana filed
the writ petition under Art. 226,17 challenging the decision of the Authority in accepting Kumaria's tender.
Ultimately, the matter reached the Supreme Court by way of special leave under Article 136.18

One of the contentions raised by the petitioner was that Kumaria did not fulfil the conditions of eligibility
stipulated in the notice inviting tenders. The Court went into this question and ruled that "the test of eligibility
laid down in the notice was an objective test and not a subjective one."19 The norms of eligibility were
reasonable, objective and non-discriminatory. The Court further found that Kumaria was not eligible to submit
the tender in terms of the norms of eligibility prescribed, and that the action of the Authority in accepting the
same contravened the terms of the notice inviting the tenders.

The next important question raised was whether there was anything wrong in the Authority accepting the
tender of Kumaria. The Authority sought to counter the petitioner's argument by the counter-argument that
the conditions of eligibility mentioned in the notice had neither any statutory force nor were they issued under
any administrative rules and, therefore, even if the notice was not adhered to by the Authority, the matter
was not justiciable and furnished no cause of action to the petitioner. The Authority argued further that it was
competent to reject all tenders received by it and negotiate directly with some one for entering into a contract
with him. This was made quite clear by the notice in question.

The Court's response to these arguments constitutes the most vital and crucial part of its opinion in the
Airport case. The Court accepted the Authority's contention that it could reject all tenders but ruled,
nevertheless, that in the instant case, in fact it did not reject all the tenders outright and enter into direct
negotiations with Kumaria for awarding the contract. On the other hand, the truth was that the Authority
accepted his tender. The action of the Authority could not, therefore, be justified by the argument that it could
have achieved the same result by rejecting all the tenders received by it and entering into direct negotiations.

The petitioner (Ramana) himself was not a tenderer. The question, therefore, arose : Did he have locus
standi to file the writ petition?20 The Court ruled that he did. The basis for his complaint was not that his
tender was rejected as a result of improper acceptance of Kumaria's tender but that he was differentially
treated and denied equal opportunity with him in submitting a tender. Had he known that non-fulfillment of
the eligibility requirement would not be a bar to the consideration of a tender, he also would have submitted a
tender and competed for obtaining a contract. When the Authority had laid down norms or standards of
eligibility, and since Kumaria did not satisfy the prescribed standards or norms of eligibility, it was not
competent to the Authority to entertain his tender. In doing so, the action of the Authority became clearly
discriminatory, "since it excluded other persons similarly situate from tendering for the contract and it was
plainly arbitrary and without reason".

The Court expounded the relevant principle on this point as follows :21

"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."

The Court insisted that the said rule "is a rule of administrative law which has been judicially evolved as a
check against exercise of arbitrary power by the executive authority." The individual comes today so much in
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"relationship of direct encounter with State power-holders", that it has become necessary "to structure and
restrict the power of the executive Government so as to prevent its arbitrary application or exercise." The
very essence of the rule of law and its bare minimal requirement is that every action of "the executive
Government must be informed with reason and should be free from arbitrariness" and it does not matter in
applying this principle whether the "exercise of the power involves affectation of some right or denial of some
privilege."22

Government's discretion is not unlimited in that it cannot give or withhold largess in its arbitrary discretion or
at its sweet will.23 Whatever its activity the Government is always the Government and is subject to restraints
inherent in its position in a democratic society. Executive action must be in conformity with some principle
which meets the test of reason and relevance. BHAGWATI, J., enunciated the crucial principle as follows :
"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 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, quotas, licences etc. must be confined
and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such
standard or norm in any particular case or cases, the action of the Government would be liable to be struck down,
unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle
which in itself was not irrational, unreasonable or discriminatory."24

While this is the principle of general Administrative Law and has an independent existence of its own, it also
flows directly from Art. 14 which strikes at arbitrariness in state action and ensures fairness and equality of
treatment.25 The Court observed on this point :26
"It must therefore follow as a necessary corollary from the principle of equality enshrined in Art. 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 or principle would be invalid unless it can be supported or justified on some rational and
non-discriminatory ground."

The court thus insisted that the norms laid down for qualification of the person to whom the contract is to be
awarded ought to be "reasonable objective and non-discriminatory" and must be strictly adhered to.

Achutan,27 the Court said, did not intend to lay down any absolute proposition permitting the State to act
arbitrarily in the matter of entering into contracts with third parties. Commenting on Achutan, BHAGWATI, J.,
observed : "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 Art. 14, because the Government must
necessarily be entitled to make a choice. But this 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 principle against arbitrary governmental action in the matter of conferring a benefit was held binding on
all government instrumentalities of which the International Airport Authority was one.28 Accordingly, having
regard to the constitutional mandate of Art. 14, as also the "judicially evolved rule of administrative law," the
Authority in question could not have acted arbitrarily by accepting Kumaria's tender, but ought to have
conformed to the standard or norm laid down in the notice inviting tenders. If there was no acceptable tender
from a person satisfying the eligibility condition, the Authority could have rejected all the tenders and invited
fresh ones prescribing a less stringent standard or norm. But it could not depart from the standard or norm
set by itself and arbitrarily accept Kumaria's tender, for by doing so it denied equality of opportunity to others
similarly situated. Thus, acceptance of Kumaria's tender was invalid as being violative of the equality clause
in the Constitution as well as the rule of Administrative Law inhibiting arbitrary action.

In spite of this statement of principles, the Court refused to set aside the Authority's decision in the instant
case awarding the contract to Kumaria in view of the peculiar facts and circumstances of the case. The Court
felt that it would not be a sound exercise of discretion to upset the authority's decision and avoid the contract
as the petitioner had no real personal interest in the result of the litigation, but was put up by Irani to deprive
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Kumaria of the benefit of the contract secured by him. The petitioner had not filed the writ petition bona fide
to protect his own interest. There was also the element of laches on his part in filing the petition after the
tender had been accepted by the Authority.29 In the meantime, Kumaria had spent a large sum of money to
put up the restaurant and it would, therefore, be most iniquitous to set aside the contract at this stage.

The most notable point in the pronouncement in Airport is the reversal of the judicial view propounded
hitherto that when the Government chose one person over another to enter into a contract, the aggrieved
party could not claim the protection of Art. 14 because the choice of the person to fulfil the particular contract
must be left to the Government like any private individual. This open and unrestricted choice of the
Government in the matter of awarding contracts to whomsoever it liked has now been restricted; the
Government is to act in this matter in conformity with some reasonable and non-discriminatory standards or
principles. The Government cannot discriminate between individuals in the matter of entering into contracts.
The Government's choice cannot be "arbitrary or fanciful." The choice must be dictated by public interest and
must not be unreasoned or unprincipled."

Further, on general principles of Administrative Law, an authority is to be held bound to the standards which
it announces it would follow in exercising its powers to confer benefits; it cannot deviate from them with
impunity and throw the proclaimed 'standards' to the winds. The Government cannot relax the announced
standards in favour of a specific person. That will be arbitrary action on its part. If the standards are to be
relaxed, this fact ought to be brought to the notice of all those who may be similarly situated. Even in the
matter of conferring privileges on the people, the Government has to follow some norms which are "rational,
relevant and non-discriminatory." Thus, in inviting tenders, the norms or standards governing the tenderers
should be reasonable and non-discriminatory, and the Government should not depart from them arbitrarily
and without proper justification.

Although, as stated earlier, both in Britain and the U.S.A, the dichotomy between privilege and right is in the
process of completely being eroded, yet the fact remains that the position reached by the Supreme Court in
Airport is far in advance of the position yet reached in the U.S.A. or Britain in respect of disciplining
Government's discretion in the matter of conferring benefits, awarding contracts or disposing of public
property.30 This is a very positive aspect of the contribution made by BHAGWATI, J., through his opinion in
Airport.

Since the landmark Airport case, the judicial attitude has undergone a sea-change in the matter of conferring
concession or benefits, awarding contracts and disposing of public property, and this has been a very fast
expanding branch of Indian Administrative Law as a large volume of case-law has arisen in this area. The
basic aim of the Supreme Court has been to ensure that Government does not award contracts, or confer
benefits on individuals, or dispose of public property in an arbitrary or discriminatory manner, that contracts
are awarded at the lowest price and public property is disposed of at the highest price in public interest.

The following propositions emanate from Airport :

(1) The government does not have an open and unrestricted choice in the matter of awarding
contracts to whomsoever it likes.
(2) The government is to exercise its discretion in conformity with some standards or principles of
eligibility laid down by it.
(2) The government is bound by the standards laid down by it in the matter of selection of the
person to award contract. The government must not award contract to some-one not fulfilling
the required conditions of eligibility. If it is done, the government action becomes discriminatory
because it excludes other persons similarly situate from tendering for the contract and that
would be plainly arbitrary. The rule flows from Art. 14 of the Constitution.31
(4) The standards laid down by the Government for the award of the contract must be "rational,
relevant and non-discriminatory". A democratic government cannot lay down arbitrary or
capricious standards for the choice of persons with whom alone it will deal.
(5) The government can not depart from these standards arbitrarily and without proper justification.
It can depart only when it is not arbitrary to do so and the departure is based on some valid
principle which in itself is not "irrational unreasonable or discriminatory."
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The position adovcated here is in line with the judicial thinking in countries like the USA and UK where the
concept of 'privileges' is being slowly eroded and being transformed into that of 'rights' which means that
cancellation of any such right has to be preceded by natural justice. As SCHWARTZ observes :32

"The privilege-right dichotomy is in the process of being completely eroded".

But the position reached by the court in the Ramana case is far in advance of the position yet reached in
either the USA or UK as regards disciplining the government's discretion in the matter of conferring benefits
on the people, especially in the matter of entering into contracts. This is a very positive aspect of the
contribution made by BHAGWATI J. through his pronouncement in Ramana.

The most significant American case in the area is Goldberg v. Kelly. 33

SCHWARTZ has spoken on the American position as follows :34

"...No one has a legal right to do business with Government."

As regards UK, the position, according to Wade, is a follows :35

"It is hardly possible to imagine a court of law giving a remedy for the withholding of contracts from a firm which would
otherwise have received them, assuming of course that there is no breach of contract or other illegality..."

(1) Kasturi Lal

Immediately after the Airport case, the question of structuring government discretion in the matter of
awarding contract to, or conferring a benefit on, someone again came before the Supreme Court in Kasturi
Lal Lakshmi Reddy v. State of Jammu & Kashmir .36

Again, BHAGWATI, J., speaking for the Supreme Court pointed out that there were two limitations imposed
by law which structure and control the discretion of the Government in conferring a benefit on individuals : (i)
in regard to the terms on which largess may be granted; (ii) in regard to the persons who may be recipients
of such largess.

As regards the first limitation, it flows directly from the thesis that, unlike a private individual, the government
cannot act as it pleases in the matter of awarding a contract or conferring a largess or benefit. Whatever it
does, government is always the government. Therefore the Government cannot exercise its powers
arbitrarily or capriciously or in an unprincipled manner; it has to exercise its powers reasonably and for the
public good. In the words of BHAGWATI, J. :37
"Every activity of the Government has a public element in it and it must, therefore, be informed with reason and guided
by public interest. Every action taken by the Government must be in public interest; the Government cannot act
arbitrarily and without reason and if it does, its action would be liable to be invalidated."

Therefore, if the Government awards a contract, or leases out or otherwise deals with its property, or grants
any other benefit or largess,38 its action would be liable to be tested for its validity on the touchstone of
"reasonableness and public interest" and if it fails to satisfy either test, it would be unconstitutional and
invalid. BHAGWATI, J., emphasized that Art. 14 strikes at arbitrariness in state action and since the principle
of reasonableness and rationality, which is legally as well as philosophically an essential element of equality
or non-arbitrariness, is projected by this Article, it must characterise every Government action, whether it be
under the authority of law or in exercise of executive power without making the law. As the Supreme Court
has asserted in Shrilekha Vidyarthi,39 the state is not relieved of its obligation to comply with the basic
requirements of Art. 14 even if the dispute falls within the domain of contractual obligations. The Court has
observed :
"To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right
or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under
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Art. 14 of non-arbitrariness at the hands of the State in any of its actions."

If a state action is arbitrary and thus violative of Art. 14, it can be struck down "irrespective of the question
whether an additional right, contractual or statutory, if any, is also available to the aggrieved persons."40

Distinguishing between contracts entered into between private parties and those to which State is a party,
the Supreme Court has pointed out that the former are concerned only with the private parties, personal
interests and personal gain whereas the latter are in public interest and for public good. This factor imparts at
least the minimum requirements of public law obligations and impresses with this character the contracts
made by the State or its instrumentalities.41

Therefore, if any governmental action fails to satisfy the test of reasonableness and public interest, and is
found to be wanting in the quality of reasonableness, or lacking in the element of public interest, it would be
liable to be struck down as invalid. It means that the Government cannot act in a manner which would benefit
a private party at the cost of the State. For example, the Government cannot give a contract or sell or lease
out its property for a consideration less than the highest that can be obtained for it, unless there are other
considerations which render it reasonable and in public interest to do so. It is on a total evaluation of various
considerations which have weighed with the Government in taking a particular action, that the court has to
decide whether the action of the Government is reasonable and in public interest.

BHAGWATI, J., pointed out that "this ground of invalidity, namely, that the governmental action is
unreasonable or lacking in the quality of public interest, is different from that of mala fides though it may, in a
given case, furnish evidence of mala fides."42Kasturi Lal really took the idea propounded in Airport, viz., that
the Government does not enjoy an unlimited power in the matter of conferring benefits on individuals, one
step further ahead.

In Airport, BHAGWATI, J., had emphasized that the Government cannot act in a discriminatory manner in
awarding a contract. In Kasturi Lal, the Court emphasized that the Government cannot confer an undue
advantage on any one at its own cost. Any arrangement arrived at between the Government and the
individual must be reasonable and fair to both the parties.

It was fortuitous that like the Ramana opinion, BHAGWATI, J., got the opportunity to deliver the Court's
opinion in Kasturi Lal as well and thus carried forward the views propounded by him in Ramana.

The sum and substance of Ramana and Kasturi Lal is that the State action in the matter of awarding a
contract or granting a largess should not be arbitrary or unreasonable or capricious either from the individual
or the Government point of view. The Government cannot act in an unprincipled manner in this area; it must
exercise its power for the public good; every governmental action has a public element in it; it cannot,
therefore, claim to just act like a private individual in the matter of awarding a contract or granting a largess
to whomsoever it likes.43 As the Supreme Court has observed in the case noted below :44
"The Government while entering into contracts or issuing quotas is expected not to act like a private individual but
should act in conformity with certain healthy standard norms. Such actions should not be arbitrary, irrational or
irrelevant."

The second restriction on the government power is regarding the persons with whom the government may
enter into a contract, or on whom it may confer largess. The Government is not free, as an ordinary individual
is, to select the party for this purpose in its absolute and unfettered discretion. The Government may not deal
with any one, but if it does so, it must do so fairly without discrimination and without unfair procedure. The
Government cannot confer a benefit or largess whether by way of giving of jobs or entering into contracts or
granting other forms of benefit on any one it pleases; its action must be in conformity with some standard or
norm which is not arbitrary, irrational or irrelevant; any departure from such standard or principle would be
invalid unless it can be supported or justified on some rational and non-discriminatory ground. The principle
of reasonableness and non-arbitrariness in government action lies at the "core of our entire constitutional
scheme."
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The Supreme Court has stated in Tata Cellular v. Union of India :45
"It cannot be denied 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 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 Art. 14 if the Government tries to get the
best person or the best quotation. The right to chose 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".

The Supreme Court has observed in F.C.I. :46

"In contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of
the Constitution of which non-arbitrariness is a significant facet. There is no unfettered discretion in public law. A public
authority possesses powers only to use them for public good. This imposes the duty to act fairly and to adopt a
procedure which is 'fairplay in action'.

Thus it is clear from the above judicial observations that the government cannot act arbitrarily in the matter of
entering into contractual relationship with third parties. It cannot choose any person it likes. Its action must
conform to some standard or norms which are rational and non-discriminatory.

Thus, if the decision to award a contract is vitiated by arbitrariness, unfairness, illegality and irrationality, the
court can strike down the decision to award the contract. Award of contracts has been challenged on such
grounds as mala fides, corruption or non-application of mind, on the part of the concerned authority or taking
into account irrelevant considerations, or the terms of the contract are arbitrary, or unreasonable.47

(2) Dinesh

In Dinesh,48 the Railway Board rejected the tender for supply of spare parts filed by the respondent. The
Supreme Court characterised it as a "flagrant violation of the constitutional mandate of Art. 14." The Court
ruled that the board had acted arbitrarily and without applying its mind while doing so.

In the instant case, there was a clause in the guidelines issued along with the tender saying that the railway
was entitled to reject any tender offer "without assigning any reasons". So, it was argued that the railway had
power to accept or not to accept the lowest tender. But the Court said as regards this clause that the power
ought to be exercised "within the realm of the object for which the clause is incorporated". The clause "does
not give an arbitrary power to the railways to reject the bid offered by a party merely because it has that
power. This is a power which in the opinion of the railways are not in the interest of the railways to accept the
offer.

The Court said that "a public authority even in contractual matters should not have unfettered discretion and
in contracts having commercial element even though some extra discretion is to be conceded in such
authorities, they are bound to follow the norm's recognised by courts while dealing with public property. This
requirement is necessary to avoid unreasonable and arbitrary decisions being taken by public authorities
whose actions are amenable to judicial review."

The Court has stated further in this connection that merely because the authority has certain elbow room
available for use of discretion in accepting offer in contracts, the same will have to be done within the four
corners of the requirements of law, especially Art. 14 of the Constitution.

In the instant case, the decision of the Railways to deny contract to the tenderer was quashed as the Board
had acted arbitrarily and without applying its mind. The Court described it as a "flagrant violation of the
constitutional mandate of Art. 14."

It was argued in Dinesh that the tender of the petitioner was rejected in pursuance of a policy decision taken
by the Railway Board. The Court does not ordinarily review a policy decision, especially an economic policy.
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But this does not mean that the Court would abdicate its review function in every situation. The Court would
review the policy to ensure that it has been formulated keeping in mind all the relevant facts and that it is
beyond the pale of discrimination or unreasonableness.

In the instant case, the Court quashed the policy decision because it was taken ignoring certain vital facts,
"an ignorance which is fatal to its policy decision". The Court observed :
"Any decision, be it a simple administrative decision or a policy decision, if taken without considering the relevant facts,
can only be termed as an arbitrary decision. If it is so, then be it a policy decision or otherwise, it will be violative of the
mandate of Art. 14 of the Constitution."

In the instant case, the Court also stated that the so-called policy suffered from the "vice of non-application of
mind," and, therefore, it had to be quashed.49

The Supreme Court has insisted in Tata Cellular :

"But the principles laid down in Art. 14 of the Constitution have to be kept in view while accepting or refusing a tender."

(3) M.I. Builders

A contract entered into between the Lucknow Municipal Corporation and a builder to build an underground
commercial complex in a municipal park was quashed by the Supreme Court in M.I. Builders v. Redhey
Shyam Sahu .50 The Court charactereised the contract in question as being against the law and the
masterplan. The contract was entered into by the corporation without calling tenders. The contract was held
to be wholly unreasonable and one-sided favouring the builder. The general rule is that to dispose of public
property, tenders ought to be called or a public auction held.51 The Court described the contract in the
following words :
"A bare glance at the terms of the agreement shows that not only the clauses of the agreement are unreasonable for
the Mahapalika but they are atrocious. No person of ordinary prudence shall ever enter into such an agreement.
Valuable land in the heart of commercial area has been handed on a platter to the builder for it to exploit and to make
runaway profits".

8. NORMS FOR AWARDING CONTRACTS

Norms for Awarding Contracts

In the matter of exercise of power by a public authority to award contracts, the function of the courts is to
prevent arbitrariness and favouritism and to ensure that the power is exercised in public interest and not for a
collateral purpose. A government decision awarding a contract can be quashed under Art. 226 by a High
Court if the decision-making process is vitiated by arbitrariness unfairness, illegality and irrationality.52 Terms
of the invitation to tender are not open to judicial scrutiny, the same being in the realm of contract. The
government must have a free hand in setting the terms of tender. It must have reasonable play in its joints as
a necessary concomitant for an administrative body in an administrative sphere. The courts can scrutinise
the award of the contracts by the government or its agencies in exercise of their powers of judicial review to
prevent arbitrariness or favourtism. It is entitled to pragmatic adjustments which may be called for by the
particular circumstances. The courts cannot strike down the terms of the tender prescribed by the
government because it feels that some other terms in the tender would have been fair, wiser or logical.53 The
courts would not interfere with the terms of tender notice unless it was shown to be either wholly arbitrary or
discriminatory or actuated by malice.54

In order to promote the above-mentioned basic values in the matter of awarding contracts, the Supreme
Court has developed certain norms for this purpose.
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(a) Inviting Tenders

Inviting tenders is regarded to be one of the fairest ways to award a contract.

The advantage in resorting to public tendering is that it affords an equal opportunity to all eligible persons to
compete and to bring a better and competitive price to the government and thus to avoid loss to the public
exchequer. The concerned authority may select the best person for the job on competitive price without
compromising with the quality of work. This technique also avoids favouritism and discrimination in awarding
contracts. This accords with the principle of equality enshrined in Art. 14 of the Constitution. Therefore,
ordinarily, a contract ought to be awarded after inviting tenders for the purpose. Awarding a contract to an
individual without inviting tenders is invalid as it amounts to "pick and choose" which violates Art. 14.55 As
the Supreme Court has observed in Tata Cellular, the principles laid down in Art. 14 have to be kept in view
while accepting or refusing a tender.56

Another general rule developed by the Supreme Court is that the contract must be awarded to one with the
lowest tender except when, in a specific case, there are some good reasons for not doing so. As the
Supreme Court has observed in Hindustan.57"... the Government had the right to either accept or reject the
lowest offer but that of course, if done on a policy, should be on some rational and reasonable grounds.

A court can interfere if the lowest tender is illegally rejected.58 The decision to reject the lowest tender must
be based upon some reasons which would satisfy and meet the requirements of Art. 14 of the Constitution.
In PSC,59 the award of the contract was quashed because the decision of the concerned authority to reject
the Lower tender of the petitioner was found to be "totally arbitrary, capricious and devoid of any sense of
fairplay."89

However, an authority may award a contract without inviting tenders in special circumstances or for reasons
of administrative compulsions and exigencies but then the authority must be able to find valid reasons which
are rational or reasonable for doing so. In the following case,60 award of a contract to a party without inviting
tenders for the same was quashed by the Court because it smacked of "unfairness, unreasonableness" and
caused loss to the exchequer.61

A contract reached through negotiations between a State Government and a company to set up as a joint
venture a multi-super-speciality hospital to give medical aid to government employees on a no profit no loss
basis and to give free medical aid to poor people was held to be valid even though no tenders were invited
for the purpose. The court ruled that so long as the state action was bona fide and reasonable, it would not
interfere merely because no advertisement was issued or publicity given or tenders invited.62 Similarly, the
State can negotiate with a party to set up an industry in the State.63

Award of contracts has been quashed on such grounds as :

(i) not giving adequate publicity to the notice inviting tenders;64

(ii) not making adequate arrangements for the supply of tender documents to the persons wishing
to take part in the tender.65

When the concerned authority unlawfully refused to give tender schedules to the petitioner, an intending
tenderer, despite his effort to get the said schedules within the time available to him, the High Court quashed
the tender notification leaving the authority free to call for fresh tenders.66

(1) Yadav Stores

Following BHAGWATI, J.'s opinions in Airport and Kasturi Lal, the Allahabad High Court held in Yadav
Medical Stores v. State ,67 that where the notice inviting tenders for supplying medicines to the government
hospital set out certain conditions, acceptance of the tender of a person not fulfilling the requisite conditions
was invalid as it would be arbitrary and violative of the equality clause. Although looking at the matter from a
conservative point of view, the conditions in the tender were merely administrative directions of a
non-statutory character and thus not binding on the Government as such,68 yet the recent judicial thinking
has adopted a radically different approach because there is grave danger involved in a situation where the
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same rules govern the rights of persons placed in the same category and yet the state is permitted to apply
one condition or restraint to one individual but at its sweet will it waives it in the case of another person
belonging to the same class. This would be flagrantly discriminatory.69

A tender filed after the deadline was rejected and the High Court upheld the action.70 A notice inviting
tenders had a clause to the following effect : "No tender will be received after 2.30 P.M. on 23-5-1957 under
any circumstances whatsoever and the tenders shall be opened at 3 P.M. on the same day." A tender
received after 2.30 P.M. was opened at 3 P.M. The court held this to be wrong. Whatever the reason, no
tender could be accepted after the appointed time.71

(2) Kanhaiya Lal

The Supreme Court has stated recently in Kanhaiya Lal Agrawal v. Union of India72 that when an essential
condition of tender is not complied with, it is open to the person inviting tender to reject the same. Whether a
condition of the lender is essential or collateral could be ascertained by reference to consequence of
non-compliance thereof. If non-fulfilment of the requirement results in rejection of the tender, then it would be
an essential part of the tender otherwise it is only a collateral term.73

(3) Patel

When instructions to bidders are issued (ITB), they are meant to be complied with scrupulously by the
bidders in order to maintain the sanctity and integrity of the process of tender/bid and also award of a
contract. If instructions are not adhered to, it will "encourage and provide scope for discrimination,
arbitrariness and favouritism which are totally opposed to the Rule of Law and our constitutional values.
Relaxation or waiver of a rule or condition, unless so provided in the instructions themselves, by the
concerned authority in favour of one bidder would create justifiable doubts in the minds of other bidders,
would impair the rule of transparency and fairness and provide room for manipulation to suit the whims of the
authority in picking and choosing a bidder for awarding contracts. Where power to relax or waive a rule or a
condition exists under the Rules, it has to be done strictly in compliance with the Rules.74

The Supreme Court has also emphasized in Patel that the rule that the contract ought to be awarded to the
lowest tenderer applies when all things are equal. If the lowest tenderer does not satisfy the prescribed
conditions, the contract cannot be awarded to him.

(4) Bhim Sen

Bhim Senv. Union of India,75 furnishes an example of administrative discrimination.

A trader was blacklisted by the Government on the ground of backing out after having submitted the tender
and after having extended its validity. The Delhi High Court held the order of blacklisting the petitioner as
arbitrary and violative of his rights under Art. 14. A person has a right to claim equal treatment to enter into a
contract. This right of equal treatment cannot be taken away by the State acting in an arbitrary manner. The
effect of arbitrarily blacklisting a contractor is to deprive him of an equal opportunity of being able to compete
with other tenderers. A mere formal compliance with natural justice "cannot offer real justice to the petitioner
if the order which is passed is arbitrary."76

In the instant case, the tender of the petitioner though lowest was not accepted by the Government within the
stipulated period of 60 days. The petitioner was then asked to extend the validity of the tender. He extended
it up to December 19, 1978, but withdrew it on November 30, 1978, as the prices went up steeply. The
Government sought to accept the tender on Dec. 2, 1978. A condition of the tender was that in the event of
default by the tenderer, he would be liable to forfeit 10% of the security amount. Accordingly, the tenderer did
lose 10% of his earnest money. But, over and above this, the Government also proposed to blacklist him.

The High Court held this to be wrong in the circumstances. The court argued that no other liability could be
fastened on the tenderer as per the terms and conditions thereof. By withdrawing his tender before being
accepted, he had not committed any breach of contract. A contractor can be blacklisted for breach of
contract. But where no concluded contract had come into existence, a tenderer could not be blacklisted if he
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was not informed previously that such penalty could be imposed if the offer made by him was withdrawn. In
other words, a new condition, not previously known to a tenderer, could not be inserted, in effect, with
retrospective effect, in the invitation for tender.

(b) Police Uniform

In another case,77 the petitioner was blacklisted not for any default in performance of contracts on his part
but on the ground that some of his close relations had defaulted in paying sales tax. The action was
characterised as arbitrary and unreasonable and violative of Art. 19(1)(g).78

(1) Barum Sinha

The petitioner had been supplying dietary articles to the state-owned hospitals in West Bengal. He submitted
a tender for the purpose in pursuance of a notice. But the respondent's tender was accepted by the
concerned officer even though his rates were higher than those quoted by the petitioner. The petitioner
challenged this action as "arbitrary and discriminatory".

In Barum K. Sinha v. District Magistrate, Murshidabad, 79 the High Court rejected the preliminary objection
that, as no legal right of the petitioner had been infringed he had no locus standi to maintain the petition.80
The court said that the concept of locus standi had been very much widened recently and a person could
maintain a writ petition not only to enforce his personal rights, but also when he had a "genuine grievance" by
an "action or inaction on the part of the authority to discharge his public duties injoined upon him by an Act."

Although the petitioner had no right to claim that his tender be accepted, yet he did have a right to have his
tender "fairly and properly" considered by the concerned authority. Arbitrary rejection of his tender without
considering it and acceptance of the respondent's tender even though the rates quoted were higher affected
the petitioner and he was thus an aggrieved person. The court emphasized upon the principle that in the
matter of public contracts, equal opportunities must be given to the citizens and they must not be
discriminated against in the matter of making their offer for such contracts and of having the same
considered. "In other words, there cannot be any discrimination at the threshold or at the time of entry in the
field of consideration of persons with whom contracts will be made by the Government."81

The court found that the tender of the petitioner had not at all been considered on merits. The acceptance of
the tender of the respondent without at all considering the lowest rate submitted by the petitioner in his
tender was wholly "arbitrary, unwarranted and bad," and not in consonance with the terms and conditions
laid down in the notice inviting tenders. A public authority cannot award a contract to whomsoever it pleases
at its sweet will and pleasure. The court observed :82

"It has to exercise its discretion in the matter of selecting right person for the giving of largess or contract or for
selecting persons for giving contract fairly and on a just consideration of all the tenders submitted on a reasonable
basis and in the case of selecting a tender of a person offering higher rate in preference to another offering a lower rate
it has to record valid, relevant and cogent reasons therefor."

The High Court took note of what the Supreme Court had said in Airport :83an executive authority must be
rigorously held to the standards by which it professes its action to be judged. It must scrupulously observe
those standards on pain of invalidation of an act in violation of them. The tender notice in the instant case
contained a condition that the "Governor reserves the right to reject any tender without assigning any reason
therefor and the acceptance of the lowest rates will not be obligatory to the contracting officer."

The court rejected the argument that this clause gave an absolute power to the tender committee to select
any tender and that the decision was final and could not be questioned as discriminatory or violative of Art.
14.84 The court emphasized that in exercising their executive powers, the public authorities cannot act
arbitrarily and cannot select a tender quoting higher rates over another tender quoting lower rates without
assigning cogent reasons therefor. The court thus issued mandamus quashing the decision of the tender
committee.85
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(c) Food Corporation

The Food Corporation of India invited tenders for handling transport of foodgrains. The concerned authority
ignoring the lowest tenderer entered into negotiations with the second lowest tenderer and recommended
him for the award of the contract. The procedure adopted contravened the guidelines issued by the FCI itself.
The High Court held that the negotiations held with the second lowest tenderer, ignoring the lowest tenderer,
were "arbitrary, illegal and without jurisdiction".86

But, in another case, the FCI did not accept the lowest tender for handling, loading, unloading and
transporting foodgrains. The FCI had prescribed such qualities for the tenderer as experience, reliability,
financial stability etc. for the tenderer and the lowest tenderer was regarded as not fulfilling these standards.
The Court ruled that the standards set by FCI were not arbitrary.87

The regional manager, FCI, rejected the lowest tender for loading and unloading foodgrains in railway
wagons. The reason was that in his opinion no one could perform a satisfactory job at that low rate. The
court upheld the manager's decision as it was not based on extraneous considerations.88 Acceptance of a
tender somewhat higher than the lowest tender on the ground that the concerned tenderer was more
competent to undertake the work in question in view of his past experience of doing similar work was upheld
by the High Court in the following case on the ground that the decision was taken for valid reasons and not
on any extraneous or irrelevant considerations.89

(1) Harminder

Tenders were invited for supply of fresh buffalo and cow milk. The appellant who was eligible and had been
supplying milk and was also on the approved list submitted tenders. The General Manager, Govt. Milk
Scheme, also filed tenders but it was in respect of pasteurised milk and not fresh milk. The milk supplied by
the Milk Scheme also required repasteurisation which entailed an additional cost. The appellant's tender was
the lowest but the tender of the Govt. Milk Scheme was accepted instead.

The Supreme Court ruled in Harminder Singh v. Union of India 90 that the acceptance of the tender of the
Government Milk Scheme was illegal and had to be quashed. The Court argued that in the instant case, the
instrumentalities of the State invited tenders for the supply of fresh buffalo and cow milk and, therefore, this
case must be decided on the basis of bids by the tenderers.

It is open to the State to adopt a policy different from the one in question. But, if the authority or the State
Government chooses to invite tenders then it must abide by the result of the tenders and cannot then
arbitrarily and capriciously accept the bid of the Milk Scheme although it was much higher and to the
detriment of the State. There was no question of any policy decision in the instant case to give preference to
a government enterprise. The contract of supply of milk was to be given to the lowest bidder under the terms
of the tender notice and the appellant being the lowest bidder he should have been granted the contract to
supply, especially, when he has been doing so for the last so many years. The tenders were to be adjudged
on their own intrinsic merits in accordance with the terms and conditions of the tender notice. It is true that
the Government may enter into a contract with any person but in so doing the State or its instrumentalities
cannot act arbitrarily.

It is possible for the Government to give some price advantage to a public undertaking over a private person
provided the same is notified in the tender. But when tenders have been floated without indicating that any
preferential treatment is to be given to Government undertakings, then the tenders have to be evaluated on
their merits. In 1985, the Government announced a policy decision of giving 10% price preference to
Government undertakings. But, in the instant case, the Court ruled that this was of no avail since the policy
decision came after the issue of the tender notice. "Acceptance or rejection of the tender made by the
appellant or the respondent No. 4 will depend on the compliance of the terms of tender notice."91

(2) Raunaq

The Supreme Court has emphasized in Raunaq92, that price may not be the sole criterion for awarding a
contract. Price offered is only one of the criteria. The past record of the tenderers, the quality of the goods or
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services which are offered, assessing such quality on the basis of the past performance of the tenderer, its
market reputation and so an, all play an important role in deciding to whom the contract should be awarded.
At times, a higher price for a much better quality of work, can be legitimately paid in order to secure proper
performance of the contract and good quality of work-which is an much in public interest as a low price. The
court should not substitute its own decision for the decision of an expert evaluation committee.

(3) Prestress

A company submitted a tender for supply of 50,000 P.C.C. poles to the U.P. State Electricity Board. The
tender of the Company was the lowest. Nevertheless, the Board acting in an "arbitrary and discriminatory
manner" excluded the tender from consideration. The Supreme Court ruled that since the action of the Board
was "unreasonable, unfair and suffered from vice of arbitrariness" and was not in advancement of public
interest, the Board must accept the tender of the appellant company and put an order for the poles tendered
for.93

(4) Noble

The Government of Assam invited tenders for the supply of potable alcohol. A number of tenders were
received but the Government rejected them all as being unsatisfactory. Thereafter, the Government made an
offer to one of the tenderers whose tender was the eleventh lowest, and he accepted the Government offer.
This was challenged by the petitioners whose tender was the second lowest. The High Court quashed the
agreement reached on the ground that offer to only one of the several tenderers was not fair and was
discriminatory. "After giving the parties the opportunity to have their respective say, the Government could
proceed to which of the tenders was to be accepted." The court ruled that the petitioner had suffered an
unfair treatment by the State.94

(5) Railway Tender

The Indian Railways floated a tender for purchase of 19000 bogies. 14 firms submitted their quotations. The
Railways placed an order for 6, 671 bogies at the rate of Rs. 65,000 each with three firms, viz., Hindustan
Development Corporation, Mukand Ltd., and Bhartiya Electric Steel Company, but placed another order for
12, 385 bogies with other tenderers at Rs. 76,000, per bogie.

Mukand and HDC filed a writ petition in the Delhi High Court challenging the award of the contract at a higher
price to several other contractors. Railways justified the differential contract price on the ground that the
three companies had formed a cartel as all of them had quoted the same price (Rs. 76,000), and they had
agreed to different prices for the supply of bogies in a bid to break the cartel.

The Delhi High Court did not accept the cartel argument. The court pointed out that in the past also, several
companies had quoted identical prices for bogies. The court concluded that the railways' stand on the
existence of a cartel was based on "extraneous considerations." The court ruled that the award of the
contract was "arbitrary and without any valid reasons." The award of contracts to nine parties at Rs. 76,000
per bogie compared to Rs. 67,000 from the three parties was "in total violation of the accepted norms" and
showed that the approving authority (Railway Minister) acted with bias. The Court said :

"We fail to understand why the approving authority did not think it proper even to offer the same minimum price offered
to the petitioners to the respondents . . . (the other nine companies) . . . particularly when it was clear that by counter
offering this, the Railways could have saved a sum of about Rs. 20 crores."

The court went on to say that the railways "had become a centre for patronising vested interests" and that
the Railway Minister rejected the Railway Board's Chairman note of the suggesting offer of lower price to all
the tenderers. Allowing the writ petition, the court directed the Railways not to pay more than Rs. 67,000 per
bogie to any of the suppliers and struck down the allocation of supply of bogies' contract to the nine
parties.95

But, on appeal, the Supreme Court reversed the High Court.96 It upheld the price differential between big
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and small suppliers of bogies in the interest of maintaining competition between the big and small
manufacturers otherwise it would result ultimately in the big manufacturers monopolising the market "That is
a very important consideration from the point of view of public interest." The Court observed :
"... the Government had the right to either accept or reject the lowest offer but that of course, if done on a policy, should
be on some rational and reasonable grounds".

(d) Lowest Tender ought to be accepted

Speaking generally, the Government should accept the lowest tender for purchase of goods, or for rendering
of some service to it. Award of a contract accepting a tender at a higher rate may be quashed as to do so is
against the interest of the Revenue.97 But this is not an invariable rule.

The Supreme Court has emphasized that the rule that the contract ought to be awarded to the lowest
tenderer applies when all things are equal. For example, if the lowest tenderer does not satisfy the
prescribed conditions, the contract cannot be awarded to him. It is in public interest to adhere to the rules
and conditions subject to which bids have been invited. "Merely because a bid is the lowest the requirements
of compliance of rules and regulations cannot be ignored.98

The Supreme Court has also clarified in Patel that the government is not obliged to award contract to any of
the bidders at his quoted price bid. It is always open to the government to negotiate with the next lowest
bidder for awarding the contract on economically viable price bid. The lowest tender can be rejected only if
there are valid reasons for doing so.99 The Government may reject all tenders or prefer a tenderer other than
the lowest on an overall consideration of circumstances, such as, experience, resources, organisation etc.
The Government decision should however be

based on cogent reasons and can be quashed if it is found to be arbitrary, irrational or discriminatory so as to
infringe Art. 14.1

The Gujarat Government awarded a contract to the tune of Rs. 37 crores not to the lowest bidder but to
another tenderer who was more experienced and had larger resources and organisation. The High Court
rejected the writ petition, saying that taking all the circumstances in view, the Government had not acted in
an unreasonable manner.2

Cochin International Airport Ltd. (CIAL), a public sector undertaking established to set up and maintain an
international airport at Cochin. CIAL invited offer to award a contract for ground handling facilities at the new
airport. Ultimately, the contract was awarded to Air India even though its quotations were higher than other
offers. Nevertheless, the Supreme Court upheld the award saying that in such a contract financial rating
cannot be the sole criterion. In a commercial transaction of such a complex nature "a lot of balancing work
has to be done while weighing all the relevant factors and the final decision has to be taken after taking an
overall view of the transaction from a few selected companies having experience in this type of work.3

A, B and a few others submitted tenders for some construction work. A's tender was the lowest but the
contract went to B whose tender was higher than A. A's tender was rejected because his experience was
limited to executing small works; he had never executed a work of such magnitude and his past performance
was not satisfactory. On the other hand, B's performance had always been satisfactory. The High Court
rejected A's contention that B was shown a favoured treatment saying : "Able and efficient people must have
their rewards. Promotion of excellence is one of the constitutional ideals we swear by."36

A also argued that to reject his tender on the basis of past performance amounted to blacklisting him, and
this was done without giving him an opportunity of hearing to enable him to contradict his past performance.
The court rejecting the argument drew a distinction between rejection of a specific tender and general
blacklisting of a contractor. Blacklisting amounts to a general disqualification, while a blacklisted person loses
his legal capacity and status to act as a contractor. Therefore, a person cannot be blacklisted without being
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given a hearing.4 But rejection of one tender on the basis of his unsuitability for that work or unsatisfactory
past performance as a contractor does not affect his eligibility to be considered for other works; this involves
no forfeiture of his pre-existing rights or interests nor does it defeat any of

his 'legitimate expectations' nor does it inflict on him any civil consequences and, therefore, there is no need
to apply natural justice in such a situation.5 "What all has to be examined in the case is whether the party,
whose tender has been rejected, has been treated fairly and honestly."6 In the instant case, the petitioner's
lowest tender was rejected and the second lowest tender was accepted. He claimed that he ought to have
been given a hearing before his tender was rejected. The court answered in the negative saying : "The
acceptance of the second lowest on comparative considerations and suitability of the performance does not
violate the principles of natural justice".

When all tenders were rejected on expert advice, the High Court held the decision as not arbitrary.7 The
decision to accept a higher tender in preference to the lower tender because the tender committee was of
the view that the lower rate was not workable was held to be not arbitrary.8 A challenged the award of
contract for construction of an overhead water tank to B. Tenders were invited by the Government for the
work but none was found acceptable as the tenderers lacked experience for the specialised nature of the
work. The Government then entered into negotiations with qualified contractors and the contract was
awarded to B who was qualified to do the job. The work in question required specialised knowledge and
experience and had to be carried out on an emergency basis.

Rejecting the writ petition, the High Court said that no case of arbitrary discrimination in awarding the
contract was made out.9 The court also stated that presumption was in favour of the government action
being reasonable and in public

interest and it was for the party challenging its validity to show that it was not so. This was a heavy burden
and must be discharged to the satisfaction of the court.10

While the courts generally insist that contracts for services or purchase of goods should be awarded after
inviting tenders, it may be possible to enter into a negotiated contract without inviting tenders if the rules so
permit.11

Cl. 7 of the tender ran as follows :

"The officer competent to dispose of the tenders shall have the right of rejecting all or any of the tenders without
assigning any reasons."

Another clause (Cl. 26) reiterated Cl. 7 in the following words :

"The final acceptance of the tender rate rests with the competent authority who does not bind himself to accept the
lowest tender or to assign any reason whatsoever."

When out of the three tenderers, the concerned officer negotiated the price with one of the tenderers, the
award of the contract was quashed by the Karnataka High Court. The court held that clauses 7 and 26 could
not validate the award of the contract. These clauses, held the court, could not justify secret negotiations
behind the back of other tenderers. The action of the concerned officer was held to be arbitrary.12

The M.P. Electricity Board invited tenders for erection of Ash handling system for a thermal plant. The tender
of a firm which was the sister concern of consulting engineers of the Board was awarded the contract. The
High Court ruled that in the context of India there was no bias or mala fides involved in the award of the
contract and the same was also not against public policy.13

The Gujarat High Court has ruled that the tender committee need not give reasons for rejecting a tender as
its job is only to scrutinise the tenders and it does not discharge a quasi-judicial function.14 However, there
may be another angle to look at the problem. Such a committee assesses the relative merits and demerits of
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the tenderers. It also decides whether a tenderer fulfils the necessary qualifications. This can very well be
regarded as an adjudicatory function and so the committee may be bound to give reasons for deciding as to
why a particular tenderer is not eligible. In the absence of such reasons, it may be difficult to assess whether
it has acted fairly and reasonably.

(1) Pre-qualifications

Certain pre-qualifications for tenders for contract works can be laid down because Government cannot give
contracts as a private party does.15 It has to ensure that the contractor has the capacity, experience and
resources to successfully execute the work. The Government cannot arbitrarily choose the contractors at its
sweet will and pleasure. It is to act reasonably and fairly and in the public interest while giving contracts.16 At
the same time, " . . . no person has a fundamental right to carry on business with the Government. All that he
can claim is that the Government should be reasonable and fair in giving its contracts and it must be in the
public interest."17

But the terms and conditions for inviting tenders should be reasonable and non-discriminatory. The validity of
these conditions can be assessed with reference to Art. 14.18 If a condition is arbitrary and without any
rational basis, it can be quashed by the Court.19

A condition for pre-qualification for taking contracts of more than one crore that the contractor should have at
least five years' experience of executing similar works was held to be reasonable just and proper looking to
the magnitude and the special nature of the works which requires special skill.20

The State Government disqualified the petitioners (two joint-venture companies) from receiving tender
documents for contract of construction of dam and power house in the State. The High Court quashed the
decision as the Government did not consider the most relevant information and proceeded on some
inaccurate and imprecise statements. The Government failed to apply its mind to correct criteria in deciding
the question of pre-qualification of the joint-venture consortia applicants. The Government based its decision
on grounds which were not germane or relevant to the question involved.21

An arbitrary decision to award contract to one who does not fulfil the prescribed eligibility conditions can be
quashed. If there is arbitrariness or discrimination in awarding a contract, it may be quashed.22

The party submitting tender must be qualified to tender as per the specifications laid down in the notice
inviting tenders (NIT). Minor deviations may however be ignored. The Supreme Court has observed that
where rational, non-discriminatory norms have been laid down for granting tenders, a departure from such
norms can only be made on valid principles.23

In Raunaq, the Court has observed :

"Where the decision-making process has been structured and the tender conditions set out the requirements, the court
is entitled to examine whether these requirements have been considered. However, if any relaxation is granted for
bona fide reasons, the tender conditions permit such relaxation and the decision is arrived at for legitimate reasons
after a fair consideration of all offers, the court should hesitate to intervene."24

There have been several cases in which the courts have voided the award of contracts to unqualified
parties.25 In several cases, the courts have been called upon to decide whether a party filing a tender was
qualified to do so under the terms laid down in NIT.26

The Bombay High Court said in B.D. Yadav v. Administrator 27 that a distinction must be made where
tenders were invited subject to certain conditions, between the conditions essential to the performance of the
contract and those which were ancillary or subsidiary to the main object of the contract. A tender should not
be accepted in violation of the former. The pronouncement in Yadav is somewhat unsatisfactory. The tender
form said that tenders were invited from "approved eligible contractors," but the court upheld the award of the
contract to an unapproved tenderer. This does not appear to be consistent with the Airport ruling. If the
municipality was minded to award the contract to a suitable tenderer even if unapproved then it should have
specifically said so in the tender form so that other unapproved contractors could also submit their tenders
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and compete. As such, there appears to be a denial of the equality principle.

The ordinary rule is that the authority inviting tenders should give effect to the terms and conditions
announced in the tender notice, but it is not every condition which is required to be complied with strictly. The
Supreme Court has stated in Poddar Steel28 that these conditions can be classified in two categories : (i)
those which lay down essential conditions of eligibility; (ii) those which are merely ancillary or subsidiary with
the main object to be achieved. The authority must enforce the conditions in the first category strictly. As
regards the conditions in the second category, in appropriate cases, the authority may deviate from them as
strict compliance of such conditions is not insisted upon.

Basing itself on PoddarSteel, the Allahabad High Court has observed in Gorakhnath :29
"Although strict compliance of the essential conditions of eligibility is required but substantial compliance of ancillary or
subsidiary conditions is sufficient and it is open to the authority not to insist on strict and literal compliance of these
conditions."

In the instant case, the highest tender of the petitioner for the grant of right to collect toll on some ghats was
rejected on some untenable grounds. The High Court quashed the order and directed the Government to
invite fresh tenders for the purpose.

In Chaitanya,30 the award of the contract was quashed by the Supreme Court. The Court characterised the
award of contracts to ineligible persons in preference to eligible persons as "unusual, wilful and perverse way
of exercising the power of distributing state largess."

It was argued on behalf of the State that no loss would be incurred by the State by the award of the contract.
The Court rejected this argument saying that even if the award of the contract "was not at the expense of the
Exchequer, there could be no question that what was done was the distribution by the State of favours
loaded with bounty by way of enabling the recipients of the favours to earn enormous profits."31

The Apex Court had ruled in Ramana that the terms and conditions advertised for inviting tenders cannot be
altered to the advantage of a particular person. The reason is that if such favourable terms and conditions
had been known to all other participants, they would have participated in the tender.

Following the above principle, the Andhra Pradesh High Court quashed the award of a contract in S.Y.
Nawab v. Municipal Corporation of Hyderabad .32 The Committee awarded the contract to the second
respondent with a view to help him, throwing all norms to the wind. The conditions advertised were revised to
help him without advertising the same afresh. The action of the committee was held to be arbitrary. The High
Court admonished the committee that in future it "shall issue advertisement clearly laying down the norms
thereof" in order to enable all the eligible persons to take part in the tender.

A municipality invited tenders for appointment of agents for collection of octroi subject to the stated terms
and conditions. After the receipt of tenders a term of eligibility of tenderers was deleted. M who was not
qualified earlier now became qualified and the contract was given to him. Quashing the award of the contract
to M, the Supreme Court took the view that when a term of the tender is deleted after the players entered the
arena, it amounts to changing the rules of the game after it had begun. If the government wishes to alter the
eligibility condition, then fresh process of tender was the only permissible alternative, as by deleting the
particular condition, a wider net will become permissible making it possible to have a larger participation of
tenders and/or more attractive bids.33

1 JAIN, Treatise, I, Chapter I.

2 Ramana Dayaram Shetty v. B.K. Mondal &Sons.56 The respondent,State of Rajasthan, State of Kerala, O.P. Singal & Co.,
N.K. Pvt. Ltd., Phool Chand, Murari Lal Bros., Modern Construction Co., D. Venkataramayya, Union of India,Union of India,
Raman Iron Foundry68 that the clause was intended to deal with the subject of recovery of the sums due. A sum due means a
sum for which there is an existing obligation to pay in praesenti, State, Firm Gobardhan Dass Kailash Nath60 negatived the
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firm's liability. The Court pointed out that the deposit of 25% of the offer price was a condition precedent for the acceptance of
the tender, Om Prakash Baldev Krishan, State of Andhra Pradesh,Union of India, N.K. Private Ltd.,International Airport
Authority of Union of India, AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]: 1979 (2)
LLJ 217: (1979) 3 SCC 489 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275].

3 On Discretionary Powers, see JAIN, Treatise, I, Chapter XIX ; JAIN, Cases, III, Chapters

4 As an example, reference may be made to Union of Indian Metals & Ferro Alloys Ltd. v. Union of India AIR 1991 SC 818
[LNIND 1990 SC 568] [LNIND 1990 SC 568] [LNIND 1990 SC 568]: 1992 Supp (1) SCC 91, where several parties keenly
cotested for the grant of mining leases. The Supreme Court considered the contentions raised by the various parties with
reference to the provisions of the Mines and Minerals (Development and Regulation) Act, 1957. Also see, Ram and Shyam Co
v. State of Haryana AIR 1985 SC 1147 [LNIND 1985 SC 188] [LNIND 1985 SC 188] [LNIND 1985 SC 188]: (1985) 3 SCC 267;
see, infra, Chapter XXVII.

5 Driplex Water Engg. v. Union of Union of India AIR 1983 NOC 182.

6 BROWN AND GARNER, French Adm. Law, 88, 125 (III ed.).

7 See TROWBRIDGE VOM BAUR, Fifty Years of Govt. Contract Law, (1972) 29 Fed Bar Jl. 305; MORGAN, Achieving National
Goals through Federal Contracts, (1974) Wisconsin L.R. 301.

8 FRIEDMANN, Law in a Changing Society, 371 (1959); COLIN TURPIN, Government Contracts; J.D.B. MITCHELL, Contracts
of Public Authorities; Note on Remedies against the United States, 70 Harv. L.R. 884.

9 D.F.O. v. Ram Sanehi Singh AIR 1973 SC 205 : (1971) 3 SCC 864. Also see, Treatise, I, Chapter IX; Cases, I, 422-424, 510,
512, 575, 594.

10 For problems falling purely under the contract law see inter alia v. Union of India (1969) 2 SCC 554 [LNIND 1969 SC 277]
[LNIND 1969 SC 277] [LNIND 1969 SC 277] : AIR 1970 SC 1955 [LNIND 1969 SC 277] [LNIND 1969 SC 277] [LNIND 1969 SC
277]; Union of India v. Rampur Distillery & Chemical Co. Ltd AIR 1973 SC 1098 : (1973) 1 SCC 649 (CASES under S. 74 of the
Act); Union of India v. Tribhuvan Das Lalji Patel AIR 1971 Del 120 (s. 73); Alopi Parshad & Sons v. Union of India AIR 1960
SC 588 [LNIND 1960 SC 14] [LNIND 1960 SC 14] [LNIND 1960 SC 14]: 1960 (2) SCR 793(S. 56).

11 WADE AND PHILIPS, Constitutional Law, 623 et seq. (1977); G.L. WILLIAMS, The Crown Proceedings Act, 1947.

12 JAIN, Indian Const. Law v. IOC, AIR 1990 SC 1031 [LNIND 1990 SC 135] [LNIND 1990 SC 135] [LNIND 1990 SC 135],
1032 : (1990) 3 SCC 752 [LNIND 1990 SC 135] [LNIND 1990 SC 135] [LNIND 1990 SC 135]; JAIN, IV, Chapter XXIII.

13 JAIN, Ind. Const. Law, Chapter X 2003.

14 Art. 299(1) is practically in the same terms as S. 175(3) of the Government of Union of India Act, 1935. In interpreting Art.
299(1), the Supreme Court has been very much influenced by its own views on S. 175(3) as expressed in the following Cases :
State of Bihar v. Karam Chand Thapar Brothers Ltd AIR 1962 SC 110 [LNIND 1961 SC 161] [LNIND 1961 SC 161] [LNIND
1961 SC 161]: 1962 (1) SCR 827; Bhikraj Jaipuria v. Union of India, AIR 1962 SC 113 [LNIND 1961 SC 253] [LNIND 1961 SC
253] [LNIND 1961 SC 253]: (1962) 2 SCR 880; State of West Bengal v. B.K. Mondal and Sons AIR 1962 SC 779 [LNIND 1961
SC 377] [LNIND 1961 SC 377] [LNIND 1961 SC 377]: 1962 Supp (1) SCR 876; Union of India v. A.L. Rallia Ram, AIR 1963 SC
1685 [LNIND 1963 SC 120] [LNIND 1963 SC 120] [LNIND 1963 SC 120]: 1964 (3) SCR 164. For text of these Cases, see,
JAIN, Cases, IV, Chapter XXIII, Sec. A.

15 "Assurance" is a very old word in English conveyancing. It is used to cover all kinds of transfers and so it includes a
"contract" as well.

16 Chaturbhuj v. Moreshwar, AIR 1954 SC 236 [LNIND 1954 SC 27] [LNIND 1954 SC 27] [LNIND 1954 SC 27]: 1954 SCR
817; Bhikraj Jaipuria v. Union of India, AIR 1962 SC 113 [LNIND 1961 SC 253] [LNIND 1961 SC 253] [LNIND 1961 SC 253]:
1962 (2) SCR 880; Bishandayal & Sons v. State of Orissa, AIR 2001 SC 544 [LNIND 2000 SC 1799] [LNIND 2000 SC 1799]
[LNIND 2000 SC 1799]: (2001) 1 SCC 555.

17 K.P. Chowdhry v. State of Madhya Pradesh, AIR 1962 MP 102. Even as late as 1975, the A.P. High Court in P. Jalpath
Rao v. State of State of Andhra Pradesh AIR 1975 AP 1905, held that when a bid offered at a forest auction was confirmed by
the proper authority a valid contract came into existence and no formal agreement was necessary. On the bidder failing to pay
the amount due to the Government, he was held liable to make good the deficiency after the reaction although there was no
contract in terms of Art. 299(1). Acceptance of bid by the authorized officer was held to result in a valid agreement, no formal
contract under Art. 299(1) being necessary. These High Court rulings are no longer valid.

18 AIR 1967 SC 203 [LNIND 1966 SC 86] [LNIND 1966 SC 86] [LNIND 1966 SC 86]: 1966 (3) SCR 919.

19 Chaturbhuj v. Moreshwar AIR 1954 SC 236 [LNIND 1954 SC 27] [LNIND 1954 SC 27] [LNIND 1954 SC 27]: 1954 SCR
817; Bhikraj Jaipuria v. Union of India AIR 1962 SC 113 [LNIND 1961 SC 253] [LNIND 1961 SC 253] [LNIND 1961 SC 253]:
1962 (2) SCR 880; Bishandayal & Sons v. State of Orissa AIR 2001 SC 544 [LNIND 2000 SC 1799] [LNIND 2000 SC 1799]
[LNIND 2000 SC 1799]: (2001) 1 SCC 555: 2001 AIR SCW 155.
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20 JAIN, Ind. Const. Law, op. cit., Chapter X.

21 K.P. Chowdhry v. State of Madhya Pradesh AIR 1967 SC 203 [LNIND 1966 SC 86] [LNIND 1966 SC 86] [LNIND 1966 SC
86]at 206 : 1966 (3) SCR 919 [LNIND 1966 SC 86] [LNIND 1966 SC 86] [LNIND 1966 SC 86].

22 K.P. Chowdhry v. State of Madhya Pradesh AIR 1967 SC 203 [LNIND 1966 SC 86] [LNIND 1966 SC 86] [LNIND 1966 SC
86]at 206 : 1966 (3) SCR 919 [LNIND 1966 SC 86] [LNIND 1966 SC 86] [LNIND 1966 SC 86].

23 Mulamchand v. State of Madhya Pradesh AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC
48]: 1968 (3) SCR 214. Also see, State of Orissa v. Durga Enterprises, Jagatsingpur AIR 1995 Ori 207 [LNIND 1995 ORI 159]
[LNIND 1995 ORI 159] [LNIND 1995 ORI 159], 211; JAIN, Cases, IV, Chapter XXV, Sec. A.

24 See, for example, Kumar Barbar Behera v. Executive Engineer AIR 1980 Ori 40 [LNIND 1979 ORI 47] [LNIND 1979 ORI 47]
[LNIND 1979 ORI 47].

25 AIR 1963 SC 1685 [LNIND 1963 SC 120] [LNIND 1963 SC 120] [LNIND 1963 SC 120]: 1964 (3) SCR 164; JAIN, Cases v.
Union of India AIR 1982 Bom 443.

26 AIR 1972 SC 915 [LNIND 1972 SC 101] [LNIND 1972 SC 101] [LNIND 1972 SC 101], 919 : (1973) 3 SCC 388 [LNIND 1972
SC 101] [LNIND 1972 SC 101] [LNIND 1972 SC 101]. Also, M. Mohammed v. Union of India AIR 1982 Bom. 443.

27 Union of India v. Chouthmal AIR 1976 MP 199 [LNIND 1975 MP 55] [LNIND 1975 MP 55] [LNIND 1975 MP 55].

28 Union of India v. N.K. Pvt. Ltd., AIR 1972 SC 915 [LNIND 1972 SC 101] [LNIND 1972 SC 101] [LNIND 1972 SC 101]:
(1973) 3 SCC 388. Also see, M.P. Oil Extraction Pvt. Ltd. v. State of M.P. AIR 1982 MP 1 [LNIND 1981 MP 78] [LNIND 1981
MP 78] [LNIND 1981 MP 78].

29 State of Bihar v. Karam Chand Thapar, AIR 1962 SC 110 [LNIND 1961 SC 161] [LNIND 1961 SC 161] [LNIND 1961 SC
161]: 1962 (1) SCR 827. Also see, Timber Kashmir Pvt. Ltd v. Conservator of Forests, AIR 1977 SC 151 [LNIND 1976 SC
389] [LNIND 1976 SC 389] [LNIND 1976 SC 389]: (1976) 4 SCC 497, where the Supreme Court held that the Conservator of
Forests was specifically authorised to sign and execute the forest leases on behalf of the State Government. Also see, infra.

30 AIR 1962 SC 113 [LNIND 1961 SC 253] [LNIND 1961 SC 253] [LNIND 1961 SC 253]: 1962 (2) SCR 880.

31 State of Bihar v. R.B. Ojha AIR 1977 Pat 258.

32 Raipada Pramanik v. State of West Bengal AIR 1977 Cal 7 [LNIND 1976 CAL 229] [LNIND 1976 CAL 229] [LNIND 1976
CAL 229].

33 Bhikraj Jaipuria v. Union of India AIR 1962 SC 113 [LNIND 1961 SC 253] [LNIND 1961 SC 253] [LNIND 1961 SC 253]:
1962 (2) SCR 880.

34 But see, infra, under "Benefit derived under an Invalid Contract".

35 See, G.S. Partners v. Union of India AIR 1959 Cal 287 [LNIND 1958 CAL 94] [LNIND 1958 CAL 94] [LNIND 1958 CAL 94].

36 Union of India v. A.L. Rallia Ram AIR 1963 SC 1685 [LNIND 1963 SC 120] [LNIND 1963 SC 120] [LNIND 1963 SC 120]:
1964 (3) SCR 164.

37 AIR 1971 SC 141 : (1970) 3 SCC 874. Also see, M. Mohammed v. Union of India, AIR 1982 Bom 443.

38 AIR 1964 SC 1714 [LNIND 1964 SC 55] [LNIND 1964 SC 55] [LNIND 1964 SC 55]: 1964 (6) SCR 984.

39 Also see, K.P. Chowdhry v. State of Madhya Pradesh AIR 1962 MP 102 : 1962 MPLJ 166; Mulamchand v. State of Madhya
Pradesh, AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC 48]: 1968 (3) SCR 214; State of West
Bengal v. B.K. Mondal & Sons AIR 1962 SC 779 [LNIND 1961 SC 377] [LNIND 1961 SC 377] [LNIND 1961 SC 377]: 1962
Supp (1) SCR 876; State of Uttar Pradesh v. Mumtaz Hussain AIR 1979 All 174.

40 AIR 1964 SC at 1714, 1722 : 1964 (6) SCR 984 [LNIND 1964 SC 55] [LNIND 1964 SC 55] [LNIND 1964 SC 55].

41 AIR 1982 Cal 167 [LNIND 1981 CAL 249] [LNIND 1981 CAL 249] [LNIND 1981 CAL 249].

42 AIR 1988 SC 2149 [LNIND 1988 SC 406] [LNIND 1988 SC 406] [LNIND 1988 SC 406]: 1988 Supp SCC 722.

43 Also see, Union of India v. Hanuman Oil Mills Ltd 1987 Suppl SCC 84.

44 Ranjit Kumar v. State of West Bengal AIR 1958 Cal 551 [LNIND 1958 CAL 157] [LNIND 1958 CAL 157] [LNIND 1958 CAL
157]; Union of India v. Jyotirmoyee AIR 1967 Cal 461 [LNIND 1966 CAL 130] [LNIND 1966 CAL 130] [LNIND 1966 CAL 130].

45 These Service Rules are made by the Central/State Government under Art. 309 of the Constitution. For discussion on the
legal position of the government servants, see, JAIN, Indian Constitutional Law, Chapter XXXVI . (2003).
 1323
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46 AIR 1958 SC 36 [LNIND 1957 SC 116] [LNIND 1957 SC 116] [LNIND 1957 SC 116]: 1958 (1) LLJ 544: 1958 SCR 828
[LNIND 1957 SC 116] [LNIND 1957 SC 116] [LNIND 1957 SC 116].

47 AIR 1988 SC 2149 [LNIND 1988 SC 406] [LNIND 1988 SC 406] [LNIND 1988 SC 406]: 1988 Supp SCC 722; JAIN, Cases,
IV, Chapter XXIII, Sec. A.

48 Also see, JAIN, Indian Const. Law, Chapter XXXVI (2003).

49 B.C. Gowda v. State of Mysore AIR 1974 Knt 135; A. Damodaran v. State of Kerala AIR 1976 SC 1533 [LNIND 1976 SC
120] [LNIND 1976 SC 120] [LNIND 1976 SC 120]: (1976) 3 SCC 61.

50 See, JAIN, Treatise, I, Chapter XIV .

51 S.K.G. Sugar Ltd v. State of Bihar, AIR 1975 Pat 123.

52 AIR 1976 SC 1533 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC 120]: (1976) 3 SCC 61.

53 State of Haryana v. Lal Chand AIR 1984 SC 1326 [LNIND 1984 SC 138] [LNIND 1984 SC 138] [LNIND 1984 SC 138]:
(1984) 3 SCC 634.

54 Lalji Khimji v. State of Gujarat (1993) Suppl. (3) SCC 567 : JT 1993 (2) SC 89 [LNIND 1993 SC 73] [LNIND 1993 SC 73]
[LNIND 1993 SC 73].

55 Steel Authority of India Ltd. v. State of Madhya Pradesh AIR 1999 SC 1630 [LNIND 1999 SC 343] [LNIND 1999 SC 343]
[LNIND 1999 SC 343], 1634 : (1999) 4 SCC 76 [LNIND 1999 SC 343] [LNIND 1999 SC 343] [LNIND 1999 SC 343].

56 Kerala State Electricity Board v. Kurien E. Kalathil AIR 2000 SC 2573 [LNIND 2000 SC 936] [LNIND 2000 SC 936], at 2576
: (2000) 6 SCC 293 [LNIND 2000 SC 936] [LNIND 2000 SC 936].

57 India Thermal Power Ltd. v. State of Madhya Pradesh AIR 2000 SC 1005 [LNIND 2000 SC 325] [LNIND 2000 SC 325]
[LNIND 2000 SC 325], at 1009 : (2000) 3 SCC 379 [LNIND 2000 SC 325] [LNIND 2000 SC 325] [LNIND 2000 SC 325].

58 Assistant Excise Commissioner v. Issac Peter (1994) 4 SCC 104, 107 : JT 1994 (2) SC 140.

59 See, infra, for discussion on Liquor Contracts.

60 AIR 1973 SC 1164 : (1973) 1 SCC 668.

61 Bareilly Development Authority v. Ajit Pal Singh, (1989) 2 SCC 116 [LNIND 1989 SC 107] [LNIND 1989 SC 107] [LNIND
1989 SC 107], 117 : AIR 1989 SC 1076 [LNIND 1989 SC 107] [LNIND 1989 SC 107] [LNIND 1989 SC 107].

62 State of Bihar v. Sonabati AIR 1954 Pat 513.

63 Also see, infra, under Liquor Contracts.

64 AIR 1973 Ker 216 [LNIND 1973 KER 41] [LNIND 1973 KER 41] [LNIND 1973 KER 41].

65 JAIN, Treatise, I, Chapter XI.

66 Also see, Marwar Tent Factory v. Union of India AIR 1975 Del 27 [LNIND 1973 DEL 222] [LNIND 1973 DEL 222] [LNIND
1973 DEL 222]; infra, under 'Contracts and Writs,' Chapter XXVII.

67 AIR 1987 SC 1359 [LNIND 1987 SC 234] [LNIND 1987 SC 234] [LNIND 1987 SC 234], 1360 : (1987) 2 SCC 160 [LNIND
1987 SC 234] [LNIND 1987 SC 234] [LNIND 1987 SC 234].

68 AIR 1974 SC 1265 [LNIND 1974 SC 98] [LNIND 1974 SC 98] [LNIND 1974 SC 98]: (1974) 2 SCC 231.

69 AIR 1975 Del 248 [LNIND 1975 DEL 80] [LNIND 1975 DEL 80] [LNIND 1975 DEL 80].

70 Mohan Meakin Breweries v. Union of India AIR 1975 Del 248 [LNIND 1975 DEL 80] [LNIND 1975 DEL 80] [LNIND 1975
DEL 80].

71 AIR 1976 Del 154 [LNIND 1975 DEL 83] [LNIND 1975 DEL 83] [LNIND 1975 DEL 83].

72 AIR 1973 Del 254.

73 AIR 1981 Sikkim 9.

74 AIR 1984 SC 29 : (1983) 4 SCC 417.

75 For principles of Natural Justice, see, JAIN, Treatise, I, Chapter X and XI.

76 International Airport Authority of Union of India v. K.D. Bali, AIR 1988 SC 1099 [LNIND 1988 SC 198] [LNIND 1988 SC 198]
 1324
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[LNIND 1988 SC 198]: (1988) 2 SCC 360; The Secretary to the Government, Transport Deptt., Madras v. Munuswamy
Mudaliar, AIR 1988 SC 2232 [LNIND 1988 SC 419] [LNIND 1988 SC 419] [LNIND 1988 SC 419]: 1988 Supp SCC 651.

77 R.B. Jodhamal Bishen Lal M/s. v. State AIR 1984 J&K 10.

78 AIR 1976 SC 2257 [LNIND 1976 SC 309] [LNIND 1976 SC 309] [LNIND 1976 SC 309]: (1976) 4 SCC 147.

79 Also see, infra, under Arbitration clauses.

80 AIR 1959 AP 551 [LNIND 1958 AP 90] [LNIND 1958 AP 90] [LNIND 1958 AP 90].

81 AIR 1981 Raj 47.

82 AIR 1988 Cal 149.

83 AIR 1986 SC 1571 [LNIND 1986 SC 560] [LNIND 1986 SC 560] [LNIND 1986 SC 560]: 1986 (2) LLJ 171 : (1986) 3 SCC
156 [LNIND 1986 SC 560] [LNIND 1986 SC 560] [LNIND 1986 SC 560]; JAIN, Treatise, I.

84 Supra, .

85 However, such a contract may not be completely devoid of all effects for all purposes. In Chaturbhuj v. Moreshwar, AIR
1954 SC 236 [LNIND 1954 SC 27] [LNIND 1954 SC 27] [LNIND 1954 SC 27]: 1954 SCR 817, the Supreme Court ruled that a
contract for the supply of goods (entered into by an authorized officer) but not in the form conformable to Art. 299(1) would not
cease to attract S. 7(d) of the Representation of the People Act, 1951, as regards disqualification for the candidate. In
Laliteshwar Prasad v. Bateshwar Prasad AIR 1966 SC 580 [LNIND 1965 SC 249] [LNIND 1965 SC 249] [LNIND 1965 SC 249]:
1966 (2) SCR 63, the Court sought to narrow down the scope of the Chaturbhuj v. Sadasiva Tripathi AIR 1969 SC 302 [LNIND
1968 SC 160] [LNIND 1968 SC 160] [LNIND 1968 SC 160]: 1969 (1) SCR 351, where the concerned officer accepted the
tender, work was initiated by the contractor, and the Government offered to pay him for the work done, but no written contract
was executed according to Art. 299(1). Though the contract was not enforceable against the Government in a civil court,
disqualification under the R.P.A. would still exist. Also see, Konappa Rudrappa Nedgunda v. Vishwanath Reddy AIR 1969 SC
580. Also see, infra.

86 K.P. Chowdhry v. State of Madhya Pradesh AIR 1967 SC 203 [LNIND 1966 SC 86] [LNIND 1966 SC 86] [LNIND 1966 SC
86]: 1966 (3) SCR 919.

87 Rajendra Singh v. State AIR 1982 Ori 111 [LNIND 1981 ORI 99] [LNIND 1981 ORI 99] [LNIND 1981 ORI 99]. Also see,
K.P. Chowdhry v. State of Madhya Pradesh AIR 1962 MP 102 : 1962 MPLJ 166.

88 Blshandayal and Sons v. State of Orissa AIR 2001 SC 544 [LNIND 2000 SC 1799] [LNIND 2000 SC 1799] [LNIND 2000
SC 1799]at 548 : (2001) 1 SCC 555 [LNIND 2000 SC 1799] [LNIND 2000 SC 1799] [LNIND 2000 SC 1799].

89 Supra.

90 Chaturbhuj v. Moreshwar Prashram AIR 1954 SC 236 [LNIND 1954 SC 27] [LNIND 1954 SC 27] [LNIND 1954 SC 27]:
1954 SCR 817.

91 AIR 1971 SC 2210 [LNIND 1971 SC 344] [LNIND 1971 SC 344] [LNIND 1971 SC 344]: (1971) 2 SCC 449.

92 AIR 1980 Ker 212 [LNIND 1980 KER 27] [LNIND 1980 KER 27] [LNIND 1980 KER 27].

93 K.N. Vidhyadharan v. State AIR 1980 Ker 212 [LNIND 1980 KER 27] [LNIND 1980 KER 27] [LNIND 1980 KER 27]: 1980
Ker LT 421.

94 AIR 1982 Bom 443.

1 M. Mohammed v. Union of India AIR 1982 Bom 443 at 455, 456.

2 M. Mohammed v. Union of India AIR 1982 Bom 443 at 455, 456.

3 AIR 1982 All 260.

4 AIR 1981 Raj 281.

5 AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC 48]: 1968 (3) SCR 214.

6 AIR 1981 Raj at 282.

7 Supra,

8 Union of India v. A.L. Rallia Ram AIR 1963 SC 1685 [LNIND 1963 SC 120] [LNIND 1963 SC 120] [LNIND 1963 SC 120]at
1690-91 : 1964 (3) SCR 164 [LNIND 1963 SC 120] [LNIND 1963 SC 120] [LNIND 1963 SC 120] ????? 1962 Supp (1) SCR
876.
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9 AIR 1972 SC 915 [LNIND 1972 SC 101] [LNIND 1972 SC 101] [LNIND 1972 SC 101], 919 : (1973) 3 SCC 388 [LNIND 1972
SC 101] [LNIND 1972 SC 101] [LNIND 1972 SC 101].

10 AIR 1977 SC 151 [LNIND 1976 SC 389] [LNIND 1976 SC 389] [LNIND 1976 SC 389]: (1976) 4 SCC 497.

11 S. 122(1) of the Jammu and Kashmir Constitution which is equivalent to Art. 299(1) of the Union of Indian Constitution.

12 AIR 1984 P & H 358.

13 Union of India v. A.L. Rallia Ram AIR 1963 SC 1685 [LNIND 1963 SC 120] [LNIND 1963 SC 120] [LNIND 1963 SC 120]:
1964 (3) SCR 164.

14 State v. B.K. Parida & Bros AIR 1982 Ori 147 [LNIND 1982 ORI 22] [LNIND 1982 ORI 22] [LNIND 1982 ORI 22].

15 See, infra, on this point.

16 Timber Kashmir Pvt. Ltd. v. Conservator of Forests AIR 1977 SC 151 [LNIND 1976 SC 389] [LNIND 1976 SC 389] [LNIND
1976 SC 389]: (1976) 4 SCC 497: 1977 (1) SCR 451. Also see Union of India v. Himco (Union of India) Pvt. Ltd AIR 1965 Cal
404 [LNIND 1962 CAL 136] [LNIND 1962 CAL 136] [LNIND 1962 CAL 136],, where the arbitration agreement was held to
satisfy the requirements of Art. 299(1).

17 Kumar Barbar Behera v. Executive Engineer AIR 1980 Ori 40 [LNIND 1979 ORI 47] [LNIND 1979 ORI 47] [LNIND 1979 ORI
47].

18 Chaturbhuj v. Vithaldas Moreshwar AIR 1954 SC 236 [LNIND 1954 SC 27] [LNIND 1954 SC 27] [LNIND 1954 SC 27]: 1954
SCR 817. In the instant case, the Court ruled that a contract for the supply of goods could not cease to attract S. 7(d) of the
Representation of the People Act merely because it does not comply with Art. 299(1) and, as such, is not enforceable against
the Government.

19 Chaturbhuj Vithaldas v. Moreshwar Parashram AIR 1954 SC 236 [LNIND 1954 SC 27] [LNIND 1954 SC 27] [LNIND 1954
SC 27], 243 : 1954 SCR 817 [LNIND 1954 SC 27] [LNIND 1954 SC 27] [LNIND 1954 SC 27].

20 State of West Bengal v. B.K. Mondal and Sons AIR 1962 SC 779 [LNIND 1961 SC 377] [LNIND 1961 SC 377] [LNIND
1961 SC 377]: 1962 Supp (1) SCR 876.

21 State of Bihar v. Karam Chand Thapar Brothers Ltd. AIR 1962 SC 110 [LNIND 1961 SC 161] [LNIND 1961 SC 161] [LNIND
1961 SC 161]: 1962 (1) SCR 827.

22 Laliteshwar Prashad v. Bateshwar Prasad AIR 1966 SC 580 [LNIND 1965 SC 249] [LNIND 1965 SC 249] [LNIND 1965 SC
249]: 1966 (2) SCR 63.

23 See, N. Purkayastha v. Union of India AIR 1955 Ass. 33.

24 AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC 48], 1222 : 1968 (3) SCR 214 [LNIND 1968
SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC 48].

25 AIR 1971 SC 2210 [LNIND 1971 SC 344] [LNIND 1971 SC 344] [LNIND 1971 SC 344]: (1971) 2 SCC 449.

26 Also see, State of Uttar Pradesh v. Murari Lal AIR 1971 SC 2210 [LNIND 1971 SC 344] [LNIND 1971 SC 344] [LNIND
1971 SC 344]: (1971) 2 SCC 449; Union of India v. Hanuman Oil Mills Ltd (1987) Suppl SCC 84, ; Bihar EGF Co-operative
Society Ltd. v. Sipahi Singh AIR 1977 SC 2149 [LNIND 1977 SC 261] [LNIND 1977 SC 261] [LNIND 1977 SC 261]: (1977) 4
SCC 145: (1978) 1 SCR 375 [LNIND 1977 SC 261] [LNIND 1977 SC 261] [LNIND 1977 SC 261]. On the other hand, even as
late as 1982, the Bombay High Court asserted in M. Mohammed v. Union of India AIR 1982 Bom 443, that while a contract
must be entered into by an authorized person, a contract entered into by an unauthorized person can be ratified by the
Government if it is for its benefit.

27 On Promissory Estoppel, see, supra.

28 AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC 48]: 1968 (3) SCR 214.

29 Mulamchand v. State of Madhya Pradesh AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC
48]at 1222., : 1968 (3) SCR 214 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC 48].

30 AIR 1973 SC 2461 : 1973 (2) LLJ 409: (1973) 2 SCC 650 [LNIND 1973 SC 250] [LNIND 1973 SC 250] [LNIND 1973 SC
250].

31 AIR 1974 Pat 267. Also see, supra,

32 For discussion on mandamus, see, infra under Judicial Control.

33 AIR 1976 Raj 12.

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34 Union of India v. Anglo-[Indo]-Afghan Agencies Ltd. AIR 1968 SC 718 [LNIND 1967 SC 334] [LNIND 1967 SC 334] [LNIND
1967 SC 334]: 1968 (2) SCR 366.

35 Century Spinning and Manufacturing Co. Ltd. v. Ulhasnagar Municipal Council AIR 1971 SC 1021 [LNIND 1970 SC 629]
[LNIND 1970 SC 629] [LNIND 1970 SC 629]: (1970) 1 SCC 582.

36 AIR 1973 SC 205 : (1973) 3 SCC 864.

37 Also see S.K.G. Sugar Co v. State of Bihar AIR 1975 Pat 123. For Natural Justice, see, JAIN, Treatise, I, Chapters X and XI
.

38 AIR 1977 SC 2149 [LNIND 1977 SC 261] [LNIND 1977 SC 261] [LNIND 1977 SC 261]: (1977) 4 SCC 145. Also see, supra,
Chapter XXII.

39 For HC's opinion see : Mulamchand v. State of M.P. ILR 1961 MP 837.

40 Bihar E.G.F. Co-operative Society v. Sipahi Singh AIR 1977 SC 2149 [LNIND 1977 SC 261] [LNIND 1977 SC 261] [LNIND
1977 SC 261]: (1977) 4 SCC 154.

41 A. Damodaran v. State of Kerala AIR 1976 SC 1533 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC 120]:
(1976) 3 SCC 61.

42 For further comments on Sipahi Singh, See, XIII A.S.I.L. 498-502.

43 Jit Ram Shiv Kumar v. State of Haryana AIR 1980 SC 1285 [LNIND 1980 SC 190] [LNIND 1980 SC 190] [LNIND 1980 SC
190], 1302 : (1981) 1 SCC 11 [LNIND 1980 SC 190] [LNIND 1980 SC 190] [LNIND 1980 SC 190].

44 On this point, see the remarks of BHAGWATI, J. in Hindustan Sugar Mills v. State of Rajasthan AIR 1981 SC 1681 [LNIND
1978 SC 204] [LNIND 1978 SC 204] [LNIND 1978 SC 204]: (1980) 1 SCC 599, exhorting the Government to be "fair and just to
the citizens" and not to shirk its legal obligation by resorting to any legal technicalities" and "not seek to defeat the legitimate
claim of the citizen by adopting a legalistic attitude" but it "should do what fairness and justice demand." Hindustan Sugar Mills
v. State of Rajasthan AIR 1981 SC 1681 [LNIND 1978 SC 204] [LNIND 1978 SC 204] [LNIND 1978 SC 204]at 1683 : (1980) 1
SCC 599.

45 As discussed in Chapter XXII, supra,

46 AIR 1984 J& K 10.

47 AIR 1983 SC 848 : (1983) 3 SCC 379; see, supra, Chapter XXII.

48 Also see, infra, under Liquor Contracts.

49 Supra, Chapter XXII.

50 See, for instance, K.P. Chowdhry v. State of Madhya Pradesh AIR 1962 MP 102 : 1962 MPLJ 166: 1961 Jab LJ 1384.

51 Supra, Chapter XXI. Similarly, Art. 166 in the State area, supra, Ch XXI,

52 Reference may be made here to Sankaran v. State of State of Kerala AIR 1963 Ker 278 [LNIND 1963 KER 13] [LNIND
1963 KER 13] [LNIND 1963 KER 13], where the High Court expressed the view (which is no longer tenable now) that Art.
299(1) was meant for the protection of the State. Therefore, Art. 299(1) was not a bar to the sustainability of a suit by the State
when it had fully performed its part of the contract even though there was no contract in terms of Art. 299(1).

53 Mulamchand v. State of Madhya Pradesh AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC
48]: 1968 (3) SCR 214.

54 Mulamchand v. State of Madhya Pradesh AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC
48]: 1968 (3) SCR 214, the Court extracted the following observation of Lord DENNING in Nelson v. Larholt (1984) 1 KB 339:"It
is no longer appropriate to draw a distinction between law and equity . Principles have now to be stated in the light of their
combined effect . . . Remedies now depend on the substance of the right, not on whether they can be fitted into a framework.
The right here is not peculiar to equity or contract or tort, but falls naturally within the important category of Cases where the
court orders restitution if the justice of the case so requires."

55 On "Restitution", see, infra.

56 AIR 1962 SC 779 [LNIND 1961 SC 377] [LNIND 1961 SC 377] [LNIND 1961 SC 377]: 1962 Supp (1) SCR 876.

57 State of West Bengal v. B.K. Mondal & Sons AIR 1962 SC 779 [LNIND 1961 SC 377] [LNIND 1961 SC 377] [LNIND 1961
SC 377]at 786-787 : 1962 Supp (1) SCR 876.

58 State of West Bengal v. B.K. Mondal & Sons AIR 1962 SC 779 [LNIND 1961 SC 377] [LNIND 1961 SC 377] [LNIND 1961
SC 377]at 789 : 1962 Supp (1) SCR 876. In the above quotations from Mondal, Art. 299(1) has been substituted for S. 175(3)
 1327
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under which the case actually arose. See, supra, note 13.

59 B.D. Naithani v. State of Uttar Pradesh AIR 1966 All 507; Pannalal v. Dy. Commissioner, Bhandara AIR 1973 SC 1174 :
(1973) 1 SCC 639; Union of India v. Sita Ram Jaiswal AIR 1977 SC 329 [LNIND 1976 SC 397] [LNIND 1976 SC 397] [LNIND
1976 SC 397]: (1976) 4 SCC 505; Devi Sahai Palliwal v. Union of India AIR 1977 SC 2082 : (1976) 4 SCC 763; 70. (plaint not
entertained in the absence of proper pleadings under S) Madasami Nadar v. Virudhunagar Municipality AIR 1977 Mad 147
[LNIND 1976 MAD 242] [LNIND 1976 MAD 242] [LNIND 1976 MAD 242]; State of Uttar Pradesh v. Chandra Gupta & Co AIR
1977 All 28, ; Nanalal Madhoji v. State of Andhra Pradesh AIR 1982 Cal 167 [LNIND 1981 CAL 249] [LNIND 1981 CAL 249]
[LNIND 1981 CAL 249]; Piloo Sidhwa v. Municipal Corporation (1970) 3 SCR 415 [LNIND 1970 SC 6] [LNIND 1970 SC 6]
[LNIND 1970 SC 6] : (1970) 1 SCC 213 [LNIND 1970 SC 6] [LNIND 1970 SC 6] [LNIND 1970 SC 6]: AIR 1970 SC 1201 [LNIND
1970 SC 6] [LNIND 1970 SC 6] [LNIND 1970 SC 6].

60 The New Marine Coal Co v. Union of India AIR 1964 SC 152 [LNIND 1963 SC 96] [LNIND 1963 SC 96] [LNIND 1963 SC
96], 155 : 1964 (2) SCR 859 [LNIND 1963 SC 96] [LNIND 1963 SC 96] [LNIND 1963 SC 96].

61 Mir Abdul Jalil v. State AIR 1984 Cal 200 [LNIND 1984 CAL 119] [LNIND 1984 CAL 119] [LNIND 1984 CAL 119].

62 AIR 1980 SC 1330 [LNIND 1980 SC 213] [LNIND 1980 SC 213] [LNIND 1980 SC 213]: (1980) 3 SCC 469.

63 AIR 1973 SC 1174 : (1973) 1 SCC 639.

64 State of Uttar Pradesh v. Mumtaz Hussain AIR 1979 All 174.

65 See, A. Damodaran v. State of Kerala AIR 1976 SC 1533 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC
120]: (1976) 3 SCC 61: 1976 (3) SCR 780 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC 120]; also,
Mulamchand v. State of Madhya Pradesh AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC 48]:
1968 (3) SCR 214; Manohar Lal v. Union of India AIR 1974 Pat 56; State of Orissa v. Raj Ballav AIR 1976 Ori 79 [LNIND 1975
ORI 48] [LNIND 1975 ORI 48] [LNIND 1975 ORI 48].

66 Rambabu v. State AIR 1981 All 16.

67 State of Orissa v. Rajballav Misra AIR 1976 Ori 19 [LNIND 1975 ORI 29] [LNIND 1975 ORI 29] [LNIND 1975 ORI 29].

68 Also see, Anath Bandhu v. Union of India AIR 1965 Cal 626 [LNIND 1965 CAL 14] [LNIND 1965 CAL 14] [LNIND 1965 CAL
14]; Dharmeshwar v. Union of India AIR 1955 Assam 86; Union of India v. Preety Kumar AIR 1958 Pat 203; Town Area
Committee v. Rajendra Kumar AIR 1978 All 103; Sankaran v. State of Kerala AIR 1963 Ker 278 [LNIND 1963 KER 13] [LNIND
1963 KER 13] [LNIND 1963 KER 13]; Pannalal v. Deputy Commissioner AIR 1973 SC 1174 : (1973) 1 SCC 639; Union of
India v. Sita Ram Jaiswal AIR 1977 SC 329 [LNIND 1976 SC 397] [LNIND 1976 SC 397] [LNIND 1976 SC 397]: (1976) 4 SCC
505; Nanalal Madhoji v. State of Andhra Pradesh AIR 1982 SC Cal 167; Union of India v. J.K. Gas Plant AIR 1980 SC 1330
[LNIND 1980 SC 213] [LNIND 1980 SC 213] [LNIND 1980 SC 213]: (1980) 3 SCC 469.

69 AIR 1987 P&H 117.

70 State of West Bengal v. B.K. Mondal & Sons AIR 1962 SC 779 [LNIND 1961 SC 377] [LNIND 1961 SC 377] [LNIND 1961
SC 377]: 1962 Supp (1) SCR 876.

71 Mulamchand v. State of M.P. AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC 48]: 1968 (3)
SCR 214.

72 P.C. Wadhwa v. State of Punjab AIR 1987 P&H 117 : (1987) 91 Punj LR 681.

73 JAIN, Treatise, I, Chapter XIX; JAIN, Cases, III, 2251-2267.

74 AIR 1972 Ker 206 [LNIND 1971 KER 164] [LNIND 1971 KER 164] [LNIND 1971 KER 164].

75 Indian Aluminium Co. v. K.S.E. Board AIR 1972 Ker 206 [LNIND 1971 KER 164] [LNIND 1971 KER 164] [LNIND 1971 KER
164], 211 : 1971 Ker LT 722: 1971 Ker LJ 775. On Promissory Estoppel, see, supra, The Court refused to apply promissory
estoppel in the fact situation.

76 Supra Chapter XXII .

77 See, for example, Gujarat State Financial Corp. v. Lotus Hotels (P) Ltd., AIR 1983 SC 848 : (1983) 3 SCC 379.

78 AIR 1975 Ori 100 [LNIND 1974 ORI 33] [LNIND 1974 ORI 33] [LNIND 1974 ORI 33], 103.

79 AIR 1975 SC 1967 [LNIND 1975 SC 225] [LNIND 1975 SC 225] [LNIND 1975 SC 225]: (1975) 2 SCC 414.

80 See, JAIN, Treatise v. Hodgson (1961) 2 All ER 46Wickford Ltd.,, the Court enunciated this principle as follows :

"(W)hen a public authority is entrusted by statute with a discretionary power to be exercised for the public good, it cannot when
making a private contract in general terms, fetter itself in the use of that power or in the exercise of such discretion."
 1328
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81 AIR 1975 SC 1967 [LNIND 1975 SC 225] [LNIND 1975 SC 225] [LNIND 1975 SC 225]at 1975 : (1975) 2 SCC 414 [LNIND
1975 SC 225] [LNIND 1975 SC 225] [LNIND 1975 SC 225].

82 AIR 1977 All 499.

83 JAIN, Treatise, I, Chapter XVIII, for discussion on Arts. 14 and 19(1)(g). Also, JAIN, Cases, II, Chapter XV,

84 AIR 1959 SC 490 [LNIND 1958 SC 161] [LNIND 1958 SC 161] [LNIND 1958 SC 161]: 1959 Supp (1) SCR 787.

85 JAIN, Treatise, I, Chapter XVIII. For discussion on these Articles, see, JAIN, Indian Constitutional Law, Chapters XXI, XXII,
XXVIII, (2003).

86 C.K. Achutan v. State of Kerala AIR 1959 SC 490 [LNIND 1958 SC 161] [LNIND 1958 SC 161] [LNIND 1958 SC 161], 502 :
1959 Supp (1) SCR 787. Emphasis has been added by the author.

87 For discussion on Mandamus, see, infra, under Judicial Control.

88 Punnen Thomas v. State of Kerala AIR 1969 Ker 81 [LNIND 1968 KER 60] [LNIND 1968 KER 60] [LNIND 1968 KER 60].

89 On 'Blacklisting' and 'Natural Justice,' see JAIN, Treatise, I, Chapter IX; JAIN, Cases, I, 511-514.

90 AIR 1969 SC 1081 [LNIND 1969 SC 13] [LNIND 1969 SC 13] [LNIND 1969 SC 13]: (1969) 1 SCC 414.

91 AIR 1971 SC 733 [LNIND 1971 SC 64] [LNIND 1971 SC 64] [LNIND 1971 SC 64]: (1971) 3 SCC 153. Also, Union of India
v. Walaiti Ram AIR 1971 SC 2295 [LNIND 1969 SC 367] [LNIND 1969 SC 367] [LNIND 1969 SC 367]: 1970 (2) SCR 594.

92 AIR 1974 Ker 23 [LNIND 1972 KER 103] [LNIND 1972 KER 103] [LNIND 1972 KER 103].

93 AIR 1974 Ker 192.

94 See, JAIN, Treatise, I, Chapter VIII ; Cases, I, Chapter VII, 357-465.

1 I. Co-op Society v. K. Service Co-op. Bank AIR. 1975 Ker 4, 7. On ' Locus Standi,' see, infra, under Judicial Control.

2 AIR 1974 SC 651 [LNIND 1974 SC 3] [LNIND 1974 SC 3] [LNIND 1974 SC 3]: (1974) 2 SCC 169.

3 C.K. Achutan v. State of Kerala AIR 1959 SC 490 [LNIND 1958 SC 161] [LNIND 1958 SC 161] [LNIND 1958 SC 161]: 1959
Supp (1) SCR 787.

4 Trilochan Mishra v. State of Orissa AIR 1971 SC 733 [LNIND 1971 SC 64] [LNIND 1971 SC 64] [LNIND 1971 SC 64]: (1971)
3 SCC 153: 37 Cut LT 233; State of Orissa v. Harinarayan Jaiswal AIR 1972 SC 1816 [LNIND 1972 SC 156] [LNIND 1972 SC
156] [LNIND 1972 SC 156]: (1972) 2 SCC 36; infra,AIR 1971 SC 2295 [LNIND 1969 SC 367] [LNIND 1969 SC 367] [LNIND
1969 SC 367]: (1970) 2 SCC 594.

5 See, JAIN, Treatise, I, Chapter XVIII ; JAIN, Cases, II, Chapter XV, 1565-1792.

6 On mala fides, see, JAIN, Treatise, I, Chapter XIX, JAIN, Cases, III, Chapter XVI, Sec. F, 2068-2135.

7 MP JAIN & S.N. JAIN, Principles of Adm. Law, 617 (III ed.).

8 See comments by the author on the Purxotoma case in X A.S.I.L., 550-551 (1974).

9 Supra, Chapter IX.

10 Eurasian Equipment & Co. Ltd v. State of West Bengal AIR 1975 SC 266 [LNIND 1974 SC 357] [LNIND 1974 SC 357]
[LNIND 1974 SC 357]: (1975) 1 SCC 70; JAIN, Cases v. State of Kerala AIR 1969 Ker 81 [LNIND 1968 KER 60] [LNIND 1968
KER 60] [LNIND 1968 KER 60]: 1968 Ker LT 800: 1968 Ker LJ 619.

11 AIR 1978 SC 930 [LNIND 1978 SC 108] [LNIND 1978 SC 108] [LNIND 1978 SC 108]: (1978) 3 SCC 36; JAIN, Treatise, I,
Chapter IX.

12 AIR 1979 Bom 250 [LNIND 1978 BOM 236] [LNIND 1978 BOM 236] [LNIND 1978 BOM 236]; JAIN, Treatise I, Chapter IX.

13 State Bank of India v. Kalpaka Transport Co. AIR 1979 Bom 250 [LNIND 1978 BOM 236] [LNIND 1978 BOM 236] [LNIND
1978 BOM 236]at 263. Also see, Raghunath Thakur v. State of Bihar, AIR 1989 SC 620 [LNIND 1988 SC 549] [LNIND 1988
SC 549] [LNIND 1988 SC 549]: (1989) 1 SCC 229; JAIN, Cases, v. Engr.-in-Chief, AIR 1999 AP 270 [LNIND 1999 AP 257]
[LNIND 1999 AP 257] [LNIND 1999 AP 257] CAD Dept. Hyderabad I &, .

14 Radhakrishna Agarwal v. State of Bihar AIR 1977 SC 1496 [LNIND 1977 SC 137] [LNIND 1977 SC 137] [LNIND 1977 SC
137]: (1977) 3 SCC 457; JAIN, Treatise, I, Chapter IX; supra, Chapter XXII. Also see, infra, under 'Contracts and Writs'.

15 AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]: 1979 (2) LLJ 217: (1979) 3 SCC
489 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275].
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16 Ramana Dayaram Shetty v. International Airport Authority AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275]
[LNIND 1979 SC 275]: 1979 (2) LLJ 217: (1979) 3 SCC 489 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275].

17 See, infra, under 'Judicial Control' for discussion on Art. 226. Also see, 'Government Contracts and Writs', infra.

18 See, infra, under 'Judicial Control' for discussion on Art. 136

19 AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]at 1634 : 1979 (2) LLJ 217 [LNIND
1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]: (1979) 3 SCC 489 [LNIND 1979 SC 275] [LNIND 1979 SC 275]
[LNIND 1979 SC 275].

20 See, infra, under 'Judicial Control' for discussion on Locus Standi.

21 AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]at 1635 : (1979) 3 SCC 489 [LNIND
1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]: 1979 (2) LLJ 217 [LNIND 1979 SC 275] [LNIND 1979 SC 275]
[LNIND 1979 SC 275]. Reference made to Vitarelli v. Seaton 359 US 535 (1959). Also, A.S. Ahluwalia v. State of Punjab AIR
1975 SC 984 : (1975) 3 SCC 503; Sukhdev v. Bhagatram AIR 1975 SC 1331 [LNIND 1975 SC 79] [LNIND 1975 SC 79]
[LNIND 1975 SC 79]: (1975) 1 SCC 421. See JAIN, Treatise, I; JAIN, Cases, I, 372.

22 AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]at 1636 : (1979) 3 SCC 489 [LNIND
1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]: 1979 (2) LLJ 217 [LNIND 1979 SC 275] [LNIND 1979 SC 275]
[LNIND 1979 SC 275].

23 Reference was made in support of this proposition to MATHEW, J.'s judgment in V. Punnen Thomas v. State of Kerala AIR
1969 Ker 81 [LNIND 1968 KER 60] [LNIND 1968 KER 60] [LNIND 1968 KER 60]: 1968 Ker LT 800: 1968 Ker LJ 619;
Eurasian Equipment & Chemicals Ltd v. State of West Bengal AIR 1975 SC 266 [LNIND 1974 SC 357] [LNIND 1974 SC 357]
[LNIND 1974 SC 357]: (1975) 1 SCC 70.

24 AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]at 1637-38.

25 See, E.P. Royappa v. State of Tamil Nadu AIR 1974 SC 555 [LNIND 1973 SC 359] [LNIND 1973 SC 359] [LNIND 1973 SC
359]: (1974) 4 SCC 3: 1974 (1) LLJ 172 [LNIND 1973 SC 359] [LNIND 1973 SC 359] [LNIND 1973 SC 359]; JAIN, Maneka
Gandhi v. Union of India, AIR 1978 SC 597 [LNIND 1978 SC 25] [LNIND 1978 SC 25] [LNIND 1978 SC 25]: (1978) 1 SCC 248;
JAIN, Eurasian Equipment, & Co. Ltd. v. State of West Bengal, AIR 1975 SC 266 [LNIND 1974 SC 357] [LNIND 1974 SC 357]
[LNIND 1974 SC 357]: (1975) 1 SCC 70. For discussion on Art. 14, see, JAIN, Treatise, I, Chapter XVIII, 817-835 ; JAIN,
Cases, II, Chapter XV, 1565-1792.

26 AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]at 1643 : 1979 (2) LLJ 217 [LNIND
1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]: (1979) 3 SCC 489 [LNIND 1979 SC 275] [LNIND 1979 SC 275]
[LNIND 1979 SC 275].

27 C.K. Achutan v. State of Kerala AIR 1959 SC 490 [LNIND 1958 SC 161] [LNIND 1958 SC 161] [LNIND 1958 SC 161]: 1959
Supp (1) SCR 787.

28 See, infra, under 'Judicial Control' and 'Public Sector Undertakings'.

29 On 'laches', see, infra, under Judicial Control.

30 On the question of dichotomy between privilege and right in the U. K. and the U.S.A., see, JAIN, Treatise, I, Chapter IX;
JAIN, Cases I, 473, 644.

31 Union of India v. Hindustan Development Corp., AIR 1994 SC 988 [LNIND 1993 SC 1080] [LNIND 1993 SC 1080] [LNIND
1993 SC 1080], 1000 : (1993) 3 SCC 499 [LNIND 1993 SC 1080] [LNIND 1993 SC 1080] [LNIND 1993 SC 1080]; Premium
Granites v. State of Tamil Nadu (1994) 2 SCC 691 [LNIND 1994 SC 1219] [LNIND 1994 SC 1219] [LNIND 1994 SC 1219] : AIR
1994 SC 2233 [LNIND 1994 SC 1219] [LNIND 1994 SC 1219] [LNIND 1994 SC 1219]; Raunaq International Ltd. v. I.V.R.
Construction Ltd. AIR 1999 SC 393 [LNIND 1998 SC 1235] [LNIND 1998 SC 1235] [LNIND 1998 SC 1235]: (1991) 1 SCC 492;
Tata Cellular v. Union of India AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND 1994 SC 665]at 25 : (1994) 6 SCC 651 [LNIND
1994 SC 665] [LNIND 1994 SC 665]; State of West Bengal Electricity Board v. Patel Engineers AIR 2001 SC 682 [LNIND
2001 SC 136] [LNIND 2001 SC 136] [LNIND 2001 SC 136]: (2001) 2 SCC 451; Lalzawmliana v. State of Mizoram AIR 2001
Gau 23 [LNIND 2000 GAU 175] [LNIND 2000 GAU 175] [LNIND 2000 GAU 175].

32 SCHWARTZ, Adm. Law, 223-230 (1976); Adm. Law--A Case book, 324-370 (1977).

33 397 US 254 (1970).

34 Schwartz, Adm. Law, 224 (1976).

35 Constitutional Fundamentals, 57.

36 AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250] [LNIND 1980 SC 250]: (1980) 4 SCC 1.

37 Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250]
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[LNIND 1980 SC 250]: (1980) 4 SCC 1.

38 On 'Conferring Benefits', see, infra, next Chapter .

39 Shrilekha Vidyarthi v. State of Uttar Pradesh, AIR 1991 SC 537 [LNIND 1990 SC 565] [LNIND 1990 SC 565] [LNIND 1990
SC 565]: (1991) 1 SCC 212; Treatise, I, Chapter XVIII; Cases, II, 1738-1748.

40 AIR 1991 SC 537 [LNIND 1990 SC 565] [LNIND 1990 SC 565] [LNIND 1990 SC 565]at 550 : (1991) 1 SCC 212 [LNIND
1990 SC 565] [LNIND 1990 SC 565] [LNIND 1990 SC 565]. For discussion on Art. 14, see, JAIN, Treatise, I, Chapter XVIII;
JAIN, Cases, II, 1565-1792.

41 Shrilekha Vidyarthi v. State of Uttar Pradesh AIR 1991 SC 537 [LNIND 1990 SC 565] [LNIND 1990 SC 565] [LNIND 1990
SC 565]at 550 : (1991) 1 SCC 212 [LNIND 1990 SC 565] [LNIND 1990 SC 565] [LNIND 1990 SC 565]; Munindra Nath
Upadhyaya v. State of Uttar Pradesh AIR 1992 SC 566 : 1993 Supp (1) SCC 437.

42 On ' Mala fides,' see, JAIN, Treatise, I, Chapter XIX; JAIN, Cases, III, 2068-2135.

43 M.P. JAIN, Justice Bhagwati and Union of Indian Administrative Law, (1980) Banaras Law Jl. 49.

44 Union of India v. Hindustan Development Corporation AIR 1994 SC 980 [LNIND 1993 SC 39] [LNIND 1993 SC 39] [LNIND
1993 SC 39]at 988 : (1993) 1 SCC 467 [LNIND 1993 SC 39] [LNIND 1993 SC 39] [LNIND 1993 SC 39]; also see, infra,

45 AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND 1994 SC 665]: (1994) 6 SCC 651.

46 F.C.I. v. Kamdhenu Cattle Feed Industries , (1993) 1 SCC 71 [LNIND 1992 SC 794] [LNIND 1992 SC 794] [LNIND 1992 SC
794], 76 : AIR 1993 SC 1601 [LNIND 1992 SC 794] [LNIND 1992 SC 794] [LNIND 1992 SC 794]. Also see , infra.

47 Centre for Public Interest Litigation v. Union of India AIR 2001 SC 80 [LNIND 2000 SC 1367] [LNIND 2000 SC 1367]
[LNIND 2000 SC 1367]: (2000) 8 SCC 606; Common Cause, a Registered Society v. Union of India AIR 1999 SC 2979
[LNIND 1999 SC 637] [LNIND 1999 SC 637] [LNIND 1999 SC 637]: (1999) 6 SCC 667; G.J. Fernandez v. State of Karnataka
AIR 1990 SC 958 [LNIND 1990 SC 55] [LNIND 1990 SC 55] [LNIND 1990 SC 55]: (1990) 2 SCC 488.

48 Union of India v. Dinesh Engineering Corp. (2001) 8 SCC 491 [LNIND 2001 SC 2091] [LNIND 2001 SC 2091] [LNIND 2001
SC 2091] : AIR 2001 SC 3847.

49 For the concept of "Non-application of mind", see, JAIN, Treatise, I, Chapter XIX.

50 AIR 1999 SC 2468 [LNIND 1999 SC 612] [LNIND 1999 SC 612] [LNIND 1999 SC 612]: (1999) 6 SCC 464.

51 See, next Chapter .

52 Centre for Public Interest Litigation v. Union of India AIR 2001 SC 80 [LNIND 2000 SC 1367] [LNIND 2000 SC 1367]
[LNIND 2000 SC 1367]: (2000) 8 SCC 606; Tata Cellular v. Union of India AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND
1994 SC 665]: (1994) 6 SCC 651.

53 Directorate of Education v. Educomp Dalamatics Ltd., (2004) 4 SCC 19 [LNIND 2004 SC 304] [LNIND 2004 SC 304], 23-24
(paras 9 and 12) : AIR 2004 SC 1962 [LNIND 2004 SC 304] [LNIND 2004 SC 304], relying on Tata Cellular v. U.O.I., (1994) 6
SCC 651 [LNIND 1994 SC 665] [LNIND 1994 SC 665] : AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND 1994 SC 665]; Air India
Ltd. v. Cochin International Airport Ltd., (2000) 3 SCC 617 : AIR 2000 SC 801 and Monarch Infrastructure (P.) Ltd. v.
Commissioner, Ulhasnagar Municipal Corporation, (2000) 5 SCC 287 [LNIND 2000 SC 858] [LNIND 2000 SC 858] [LNIND
2000 SC 858] : AIR 2000 SC 2272 [LNIND 2000 SC 858] [LNIND 2000 SC 858] [LNIND 2000 SC 858].

54 Global Energy Ltd. v. Adani Exports Ltd., (2005) 4 SCC 435 [LNIND 2005 SC 455] [LNIND 2005 SC 455] [LNIND 2005 SC
455], 440-41 (paras 9 and 10) : AIR 2005 SC 2653 [LNIND 2005 SC 455] [LNIND 2005 SC 455] [LNIND 2005 SC 455],
following Tata Cellular v. U.O.I., (1994) 6 SCC 651 [LNIND 1994 SC 665] [LNIND 1994 SC 665] : AIR 1996 SC 11 [LNIND
1994 SC 665] [LNIND 1994 SC 665]; Air India Ltd. v. Cochin International Airport Ltd., (2000) 2 SCC 617 : AIR 2000 SC 801.
Directorate of Education, v. Educomp Datamatics Ltd., (2004) 4 SCC 19 [LNIND 2004 SC 304] [LNIND 2004 SC 304] : AIR
2004 SC 1962 [LNIND 2004 SC 304] [LNIND 2004 SC 304].

55 Sterling Computers Ltd. v. M&N Publication Ltd. (1993) 1 SCC 445 : AIR 1996 SC 51: JT 1993 (1) SC 187; V. Sivakumar v.
State of Kerala AIR 1999 Ker 49.

56 Tata Cellular v. Union of India, AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND 1994 SC 665], at 25 : JT 1994 (4) SC 532
[LNIND 1994 SC 665] [LNIND 1994 SC 665].

57 Union of India v. Hindustan Development Corporation AIR 1994 SC 988 [LNIND 1993 SC 1080] [LNIND 1993 SC 1080]
[LNIND 1993 SC 1080]: JT 1993 (3) SC 15; see infra v. State of Mizoram AIR 2001 Gau 23 [LNIND 2000 GAU 175] [LNIND
2000 GAU 175] [LNIND 2000 GAU 175].

58 Pritam Singh v. State of Punjab AIR 1997 P&H 194; Tata Cellular v. Union of India AIR 1996 SC 11 [LNIND 1994 SC 665]
[LNIND 1994 SC 665]: JT 1994 (4) SC 532. Also see, infra.
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59 PSC Engineers Pvt. Ltd. v. State of Tripura AIR 2000 Gau 198 [LNIND 2000 GAU 162] [LNIND 2000 GAU 162] [LNIND
2000 GAU 162].

60 ABC Enterprises v. M/s AIR 1996 J & K 57 Bodh RajCharan Singh, .

61 Also see, Sterling Computers Ltd. v. M&N Publications Ltd., (1993) 1 SCC 445, 458 : AIR 1996 SC 51. In this case, the
Supreme Court quashed award of a contract to print telephone directories without inviting tenders.

62 Tej Singh Sarvpriya v. State of Rajasthan State Mines & Minerals Ltd. AIR 2001 Raj 225.

63 Kasturilal Lakshmi Reddy v. State of Jammu & Kashmir AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250]
[LNIND 1980 SC 250]: (1980) 4 SCC 1; State of Madhya Pradesh v. Nandlal Jaiswal AIR 1987 SC 251 [LNIND 1986 SC 400]
[LNIND 1986 SC 400] [LNIND 1986 SC 400]: (1986) 4 SCC 566.

64 Arphi v. Union of India AIR 1995 Del 388 [LNIND 1995 DEL 266] [LNIND 1995 DEL 266] [LNIND 1995 DEL 266]

65 Doss v. Chairman AIR 1995 Mad 424 [LNIND 1995 MAD 263] [LNIND 1995 MAD 263] [LNIND 1995 MAD 263]
TamilNaduElectricity Board,.

66 K. Soosalrathnam v. Divisional Engineer AIR 1995 Mad 90 [LNIND 1994 MAD 472] [LNIND 1994 MAD 472] [LNIND 1994
MAD 472] NHC, Tirunelveli, .

67 AIR 1981 All 139. This ruling was applied by the Karnataka High Court in the Union of Indian Hume Pipe Co. Ltd v.
Bangalore Water & Sewage Board AIR 1990 Knt 305.

68 On Directions, see, JAIN, Treatise, I, Chapter VIII. Also see, JAIN, Cases, I, Chapter VII.

69 Also see, Artee Minerals v. State AIR 1983 All 416, where the court found nothing arbitrary in the selection of suppliers of
insecticides.

70 Salesh Kumar Rana v. State of Uttar Pradesh AIR 1995 All 237 [LNIND 1994 ALL 116] [LNIND 1994 ALL 116] [LNIND 1994
ALL 116].

71 B. Rajkumar Patra v. Union of India AIR 1981 Ori 143 [LNIND 1981 ORI 31] [LNIND 1981 ORI 31] [LNIND 1981 ORI 31].

72 AIR 2002 SC 2766 [LNIND 2002 SC 459] [LNIND 2002 SC 459] [LNIND 2002 SC 459]: (2002) 6 SCC 315.

73 Also see, G.J. Fernandaz v. State of Karnataka AIR 1990 SC 958 [LNIND 1990 SC 55] [LNIND 1990 SC 55] [LNIND 1990
SC 55]: (1990) 2 SCC 488.

74 West Bengal Electricity Board v. Patel Engineering Co. Ltd. AIR 2001 SC 682 [LNIND 2001 SC 136] [LNIND 2001 SC 136]
[LNIND 2001 SC 136], at 692 : (2001) 2 SCC 451 [LNIND 2001 SC 136] [LNIND 2001 SC 136] [LNIND 2001 SC 136].

75 AIR 1981 Del 260 [LNIND 1980 DEL 256] [LNIND 1980 DEL 256] [LNIND 1980 DEL 256].

76 Bhim Sen v. Union of India AIR 1981 Del 260 [LNIND 1980 DEL 256] [LNIND 1980 DEL 256] [LNIND 1980 DEL 256], 261 :
1981 Rajdhani LR 52. Also see, Unibros v. All Union of India Radio AIR 1995 Del 368 [LNIND 1995 DEL 437] [LNIND 1995
DEL 437] [LNIND 1995 DEL 437].

77 Police Uniform Production Centre v. DG & IG Police AIR 1990 AP 9 [LNIND 1988 AP 198] [LNIND 1988 AP 198] [LNIND
1988 AP 198].

78 For discussion on Art. 19(1)(g), see, JAIN, Treatise, I, Chapter XVIII; JAIN, Cases, II, 1838-1901, JAIN, Indian Constitutional
Law, Chapter XXI.

79 AIR 1982 Cal 19 [LNIND 1981 CAL 277] [LNIND 1981 CAL 277] [LNIND 1981 CAL 277].

80 On ' Locus Standi', see, infra, under Judicial Control .

81 AIR 1982 Cal 19 [LNIND 1981 CAL 277] [LNIND 1981 CAL 277] [LNIND 1981 CAL 277]at 25.

82 AIR 1982 Cal 19 [LNIND 1981 CAL 277] [LNIND 1981 CAL 277] [LNIND 1981 CAL 277]at 28.

83 AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275], 1635 : (1979) 2 LLJ 217 [LNIND
1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]: (1979) 3 SCC 489 [LNIND 1979 SC 275] [LNIND 1979 SC 275]
[LNIND 1979 SC 275].

84 Reference was made in this connection to some old CASES, such as, Purxotoma R. Quenim v. M.K. Tandel, AIR 1974 SC
651 [LNIND 1974 SC 3] [LNIND 1974 SC 3] [LNIND 1974 SC 3], 653 : (1974) 2 SCC 169 [LNIND 1974 SC 3] [LNIND 1974 SC
3] [LNIND 1974 SC 3], and C.K. Achutan v. State of Kerala AIR 1959, SC 490 : 1959 Supp (1) SCR 787. The High Court held
that the view expressed in these CASES "no longer holds the field."
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85 For discussion on ' Mandamus' see, infra, under Judicial Control.

86 K. Veeraiah v. Food Corp. of India, Hyderabad AIR 1989 AP 324 [LNIND 1989 AP 153] [LNIND 1989 AP 153] [LNIND 1989
AP 153].

87 FCI Coop. Soc. v. FCI, AIR 1988 Knt 332.

88 G. Rambabu v. Zonal Manager, FCI, AIR 1988 AP 304 [LNIND 1987 AP 434] [LNIND 1987 AP 434] [LNIND 1987 AP 434].
On the concept of extraneous considerations, see, JAIN, Treatise, I, Chapter XIX; JAIN, Cases, III, Chapter XVI, 2154-2196.

89 Ananda Egineering Works Pvt. Ltd. v. State of Kerala Mineral & Metals Ltd. AIR 1995 Ker 302.

90 AIR 1986 SC 1527 [LNIND 1986 SC 190] [LNIND 1986 SC 190] [LNIND 1986 SC 190]: (1986) 3 SCC 247.

91 On Public Sector Undertakings, see, infra.

92 Raunak International Ltd. v. I.V.R. Construction Ltd. AIR 1999 SC 393 [LNIND 1998 SC 1235] [LNIND 1998 SC 1235]
[LNIND 1998 SC 1235]: (1999) 1 SCC 492: 1999 (1) Arb LR 431.

93 Prestress India Corpn. v. U.P. State Electricity Board AIR 1988 SC 2035 : 1988 Supp SCC 716.

94 Noble Sales Agency v. State of Assam AIR 1992 Gau 47.

95 Judgement of Delhi High Court, dt. Aug. 28, 92.

96 Union of India v. Hindustan Development Corporation AIR 1994 SC 988 [LNIND 1993 SC 1080] [LNIND 1993 SC 1080]
[LNIND 1993 SC 1080]: (1993) 3 SCC 499.

97 Dutta Associates Pvt. Ltd. v. Indo Mercantiles Pvt. Ltd. (1997) 1 SCC 53 [LNIND 1996 SC 1894] [LNIND 1996 SC 1894]
[LNIND 1996 SC 1894] : JT 1996 (10) SC 419; PSC Engineers Pvt. Ltd. v. State of Tripura AIR 2000 Gau 193.

98 West Bengal Electricity Board v. Patel Eng. Co. Ltd. AIR 2001 SC 682 [LNIND 2001 SC 136] [LNIND 2001 SC 136] [LNIND
2001 SC 136]at 694 : (2001) 2 SCC 451 [LNIND 2001 SC 136] [LNIND 2001 SC 136] [LNIND 2001 SC 136].

99 Lal Zawemliana v. State of Mizoram AIR 2001 Gau 23 [LNIND 2000 GAU 175] [LNIND 2000 GAU 175] [LNIND 2000 GAU
175].

1 State of Uttar Pradesh v. Vijay Bahadur Singh AIR 1982 SC 1234 : (1982) 2 SCC 365; Akhtar Brothers v. State of Madhya
Pradesh AIR 1996 MP 93 [LNIND 1995 MP 298] [LNIND 1995 MP 298] [LNIND 1995 MP 298]; Plantation Corporation of
Kerala Ltd v. PL Agro Technologies Ltd AIR 1996 Ker 127; Food Corporation of India v. Kamdhenu Cattle Feed Industries AIR
1993 SC 1601 [LNIND 1992 SC 794] [LNIND 1992 SC 794] [LNIND 1992 SC 794]: (1993) 1 SCC 71; Progoty Supply Co-op.
Society Ltd v. State of Assam, AIR 1996 Gau. 67; Y. Konda Reddy v. State of Andhra Pradesh AIR 1997 AP 121 [LNIND 1996
AP 1084] [LNIND 1996 AP 1084] [LNIND 1996 AP 1084]; West Bengal Electrcity Board v. Patel Eng. Co. Ltd. AIR 2001 SC at
682 : (2001) 2 SCC 451 [LNIND 2001 SC 136] [LNIND 2001 SC 136] [LNIND 2001 SC 136]: 2001 (1) Arb LR 540 See also
Master Marine Services (P.) Ltd. v. Metcalfe & Hodgkinson (P.) Ltd., (2005) 6 SCC 138 [LNIND 2005 SC 389] [LNIND 2005 SC
389] [LNIND 2005 SC 389],147 (paras 11 and 12) : AIR 2005 SC 2299 [LNIND 2005 SC 389] [LNIND 2005 SC 389] [LNIND
2005 SC 389]: JT 2005 (4) SC 408.

2 Prabhudas bhai Bhikhabhai Patel v. State of Gujarat AIR 1981 Guj 117 [LNIND 1981 GUJ 35] [LNIND 1981 GUJ 35] [LNIND
1981 GUJ 35]. Also, Asiatic Labour Corporation v. Union of India, AIR 1983 Guj 86 [LNIND 1982 GUJ 129] [LNIND 1982 GUJ
129] [LNIND 1982 GUJ 129], where contract was given for three years after calling tenders. It was then extended for another
three years without calling tenders. The High Court held the extension valid as it was in public interest.

3 Air India Ltd. v. Cochin International Airport Ltd. AIR 2000 SC 801 : (2000) 2 SCC 617.

4 Raghunath Thakur v. State of Bihar (1989) I SCC 229, 230 : AIR 1989 SC 620 [LNIND 1988 SC 549] [LNIND 1988 SC 549]
[LNIND 1988 SC 549]: JT 1988 (4) SC 728; Southern Painters v. Fertilizers AIR 1994 SC 1277& Chemicals Travancore Ltd., :
1994 Supp (2) SCC 699.

5 Sri Rama Engg. Contractors v. Deptt. of Space, Govt of Union of India AIR 1981 AP 165 [LNIND 1981 AP 64] [LNIND 1981
AP 64] [LNIND 1981 AP 64], Also see, R.K. Aneja v. Delhi Development Authority AIR 1989 Del 17 [LNIND 1988 DEL 119]
[LNIND 1988 DEL 119] [LNIND 1988 DEL 119].

6 Amarchand Sharma v. Union of India AIR 1988 AP 45 [LNIND 1986 AP 180] [LNIND 1986 AP 180] [LNIND 1986 AP 180].

7 State v. Chirag Enterprises AIR 1982 Raj 169 [LNIND 1981 RAJ 11] [LNIND 1981 RAJ 11] [LNIND 1981 RAJ 11].

8 Omprakash Patwarika v. Union of India AIR 1982 Cal 340 [LNIND 1982 CAL 60] [LNIND 1982 CAL 60] [LNIND 1982 CAL
60].

9 T.M. Abraham v. State AIR 1984 Ker 42.

 1333
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10 Kasturilal Lakshmi Reddy v. State of Jammu & Kashmir AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250]
[LNIND 1980 SC 250]: (1980) 4 SCC 1.

11 Union of India v. Ram Das Goko Mal AIR 1992 Raj 168.

12 The Indian Hume Pipe Co. Ltd v. Bangalore W.S. & S. Board AIR 1990 Knt 305.

13 Bakatawar Singh v. State of Madhya Pradesh AIR 1992 MP 318 [LNIND 1992 MP 86] [LNIND 1992 MP 86] [LNIND 1992
MP 86]. On mala fides, see, JAIN, Treatise, I, Chapter XIX.

14 Aga Construction v. Chief Engineer, Municipal Corporation, Hyderabad AIR 1982 AP 70 [LNIND 1981 AP 205] [LNIND 1981
AP 205] [LNIND 1981 AP 205]. Also see, Continental Pump and Motors Ltd v. State of Bihar AIR 1995 Pat 183.

15 Aga Constructions v. Chief Engineer, Municipal Corporation, Hyderabad AIR 1982 AP 70 [LNIND 1981 AP 205] [LNIND
1981 AP 205] [LNIND 1981 AP 205]; M.L. Mahajan v. Chief Engineer, Ravi Tavi Irrigation Complex AIR 1983 J&K 14; S.M.
Qadir v. Special Officer, Mun. Corpn., Hyderabad AIR 1987 AP 6 [LNIND 1985 AP 254] [LNIND 1985 AP 254] [LNIND 1985 AP
254]; G.J. Fernandez v. State of Karnataka (1990) 2 SCC 488 [LNIND 1990 SC 55] [LNIND 1990 SC 55] [LNIND 1990 SC 55],
490 : AIR 1990 SC 958 [LNIND 1990 SC 55] [LNIND 1990 SC 55] [LNIND 1990 SC 55]; JAIN, Cases, IV, Chapter XXII.

16 Aga Construction v. Chief Engineer, Municipal Corporation AIR 1982 AP 70 [LNIND 1981 AP 205] [LNIND 1981 AP 205]
[LNIND 1981 AP 205], 78.

17 Aga Construction v. Chief Engineer, Municipal Corporation AIR 1982 AP 70 [LNIND 1981 AP 205] [LNIND 1981 AP 205]
[LNIND 1981 AP 205], 78. Also see, C. Swanandan v. State AIR 1995 Ker 354 [LNIND 1995 KER 120] [LNIND 1995 KER 120]
[LNIND 1995 KER 120]; G.K. Pasayat v. State of Orissa State AIR 1996 Ori 136Housing Board, .

18 Flyfot (I) Ltd. v. Union of India AIR 1996 Cal 291 [LNIND 1995 CAL 266] [LNIND 1995 CAL 266] [LNIND 1995 CAL 266].

19 Victoria Engineering Works v. Union of India AIR 1995 Del 253 [LNIND 1995 DEL 21] [LNIND 1995 DEL 21] [LNIND 1995
DEL 21]; Krishnamurthy v. Airports Authority of India (2004) 18 ILD 126 (Mad).

20 Deepak Builders v. State, AIR 1996 Raj 178.

21 Asia Foundation & Constructions Ltd v. State AIR 1986 Guj 185 [LNIND 1985 GUJ 159] [LNIND 1985 GUJ 159] [LNIND
1985 GUJ 159].

22 G.J. Fernandez v. State of Karnataka AIR 1990 SC 958 [LNIND 1990 SC 55] [LNIND 1990 SC 55] [LNIND 1990 SC 55]:
(1990) 2 SCC 488; Konark Infrastructure Pvt. Ltd. v. Commissioner Ulhasnagar Municipal Corp., AIR 2000 Bom 389 [LNIND
2000 BOM 208] [LNIND 2000 BOM 208] [LNIND 2000 BOM 208].

23 Premium Granites v. State of Tamil Nadu (1994) 2 SCC 691 [LNIND 1994 SC 1219] [LNIND 1994 SC 1219] [LNIND 1994
SC 1219] : AIR 1994 SC 2233 [LNIND 1994 SC 1219] [LNIND 1994 SC 1219] [LNIND 1994 SC 1219]; Raunaq Int'l Ltd. v.
I.V.R. Construction Ltd AIR 1999 SC 393 [LNIND 1998 SC 1235] [LNIND 1998 SC 1235] [LNIND 1998 SC 1235], 400, : (1999)
1 SCC 492 [LNIND 1998 SC 1235] [LNIND 1998 SC 1235] [LNIND 1998 SC 1235], also, infra.

24 Raunaq Int'l Ltd. v. I.V.R. Constructions Ltd. AIR 1999 SC 393 [LNIND 1998 SC 1235] [LNIND 1998 SC 1235] [LNIND 1998
SC 1235], 398 : (1999) 1 SCC 492 [LNIND 1998 SC 1235] [LNIND 1998 SC 1235] [LNIND 1998 SC 1235].

25 P.C.T. Ltd v. Bangaigaon Refining AIR 1994 Del 322 [LNIND 1994 DEL 15] [LNIND 1994 DEL 15] [LNIND 1994 DEL 15]
Petrochemicals Ltd.,.

26 G.J. Fernandez v. State of Karnataka, (1990) 2 SCC 488 [LNIND 1990 SC 55] [LNIND 1990 SC 55] [LNIND 1990 SC 55],
490 : AIR 1990 SC 958 [LNIND 1990 SC 55] [LNIND 1990 SC 55] [LNIND 1990 SC 55]; JAIN, Cases v. State, AIR 1986 Guj
185 [LNIND 1985 GUJ 159] [LNIND 1985 GUJ 159] [LNIND 1985 GUJ 159]; New Horizons v. Union of India, (1995) 1 SCC 478
[LNIND 1994 SC 1033] [LNIND 1994 SC 1033] [LNIND 1994 SC 1033].

27 AIR 1984 Bom 351 [LNIND 1982 BOM 103] [LNIND 1982 BOM 103] [LNIND 1982 BOM 103].

28 Poddar Steel Corp. v. M/s. Ganesh Engineering Works AIR 1991 SC 1579 [LNIND 1991 SC 265] [LNIND 1991 SC 265]
[LNIND 1991 SC 265]: (1991) 3 SCC 273. Also See, B.D. Yadav v. Administrator, AIR 1984 Bom 351 [LNIND 1982 BOM 103]
[LNIND 1982 BOM 103] [LNIND 1982 BOM 103]; G.J. Fernandez v. State of Karnataka AIR 1990 SC 958 [LNIND 1990 SC 55]
[LNIND 1990 SC 55] [LNIND 1990 SC 55]: (1990) 2 SCC 488.

29 Gorakhnath Upadhyaya v. State of Uttar Pradesh AIR 1994 All 283 [LNIND 1993 ALL 215] [LNIND 1993 ALL 215] [LNIND
1993 ALL 215]. Also Munindra Nath Upadhyaya v. State of Uttar Pradesh, AIR 1992 SC 566 : 1993 Supp (1) SCC 437.

30 Chaitanya Kumar v. State of Karnataka AIR 1986 SC 825 [LNIND 1986 SC 115] [LNIND 1986 SC 115] [LNIND 1986 SC
115]: (1986) 2 SCC 594.

31 Also see, Dutta Associates Pvt. Ltd. v. Indo Mercantiles Pvt. Ltd. (1997) 1 SCC 53 [LNIND 1996 SC 1894] [LNIND 1996 SC
1894] [LNIND 1996 SC 1894] : 1997 (1) Arb LR 87; PSC Engineers Pvt. Ltd. v. Tripura AIR 2000 Gau 198 [LNIND 2000 GAU
162] [LNIND 2000 GAU 162] [LNIND 2000 GAU 162]; Asia Foundation & Construction Co. Ltd. v. Trafalgar House Construction
 1334
Page 281

Ltd. (1997) 1 SCC 738 [LNIND 1996 SC 2161] [LNIND 1996 SC 2161] [LNIND 1996 SC 2161] : JT 1997 (1) SC 309 [LNIND
1996 SC 2161] [LNIND 1996 SC 2161] [LNIND 1996 SC 2161]; Raunaq International Ltd. v. IVR Construction AIR 1999 SC
393 [LNIND 1998 SC 1235] [LNIND 1998 SC 1235] [LNIND 1998 SC 1235]: JT 1998 (8) SC 411; Prestress India Corp. v. U.P.
State Electricity Board AIR 1988 SC 2035 : JT 1988 (3) SC 428; Alok Prasad Varma v. Union of India AIR 2001 Pat 211.

32 AIR 2001 AP 403 [LNIND 2001 AP 445] [LNIND 2001 AP 445] [LNIND 2001 AP 445].

33 Monarch Infrastructure (P.) Ltd. v. Commissioner AIR 2000 SC 2272 [LNIND 2000 SC 858] [LNIND 2000 SC 858] [LNIND
2000 SC 858]: (2005) 5 SCC 287.

M P Jain Principles of Administrative Law/M P Jain Principles of Administrative Law/Volume 2/CHAPTER

XXVII GOVERNMENT CONTRACTS (II)

CHAPTER XXVII

GOVERNMENT CONTRACTS (II)

1. CONFERRING BENEFITS

Besides regulating administrative discretion in the matter of awarding contracts, the Airport case has also
been significant in another respect as well, viz., it seeks to regulate Government discretion to confer largess
and benefits on the individuals. Today Government is a big source of wealth as it has power to grant
licences, quotas, permits, which generate wealth for the individuals. It is, therefore, necessary to develop
some norms to structure Government discretion in this area so as to avoid undue favouritism or patronage of
some individuals at the cost of others.

The principles stated in Airport for awarding contracts are equally applicable in this area as well. These
principles have been reiterated in several cases thereafter. The position has now come to be crystallised that
in conferring any benefit or largess, or making any grant, the Government must not discriminate among
individuals and that the grant must be in the interest of the state and not at its cost. The Government is
subject to Art. 14 in this respect. The sum and substance of the matter is that the state action should not be
arbitrary, unfair, or discriminatory or unreasonable either from the individual or the state point of view.1
Government is always a Government and its every action must be informed with reason and should be free
from arbitrariness. In selecting recipients for its largess, the Government cannot act arbitrarily or capriciously.
Its activities have a public element and as such there should be fairness and equality for the simple reason
that there is no unfettered discretion in public law;2 the Government cannot thus act in a manner benefiting a
private party at the cost of the state; such an action would be unreasonable and contrary to public interest.
The principles enunciated in Airport are applicable both to the award of contracts as well as conferment of
any other benefit or largess by the Government.

On the question of conferring largess, the Supreme Court has observed in Ramana Dayaram Shetty v.
International Airport Authority :3

"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 such standard or norm in any particular case or cases, the action of the government would be
liable to be struck down, unless it can be shown by the government that the departure was not arbitrary but was based
on some valid principle which in itself was not irrational, unreasonable or discriminatory."

The Supreme Court observed in Mahabir Auto:4

"It appears to us that the rule of reason and rule against arbitrariness and discrimination, rules of fairplay and natural
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justice are part of the rule of law applicable in situation or action by state instrumentalities in dealing with citizens in a
situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner,
the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the
touchstone of relevance and reasonableness, fair play, natural justice, equality and non-discrimination in the type of
transactions and nature of the dealing as in the present case."

In Kasturi Lal,5 BHAGWATI, J., described the march of law in the area under discussion as follows :
"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 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 largess on its arbitrary discretion or at its sweet will or on such
terms as it chooses in its absolute discretion."

The Supreme Court has ruled in Sundaram6 that "while grant of largess is at the discretion of the State
Government, its action should be open, fair, honest and completely above board". In the instant case, grant
of lease by the State in favour of a party for quarrying coloured granite was quashed on the ground that in
doing so, the State had not acted "fairly and reasonably and had not kept public interest and mineral
development in the in view".

Quite a few cases have come before the courts in which conferment of some largess, benefit or advantage
by the Government on some individuals has been challenged in the courts. Mainly the question raised in
these cases has been : whether or not Government has exercised its discretion in an arbitrary or
discriminatory manner? In some of these cases, the courts have found substance in the challenge and
quashed the administrative action in question.

The emphasis of the courts has been that rights to ferries, fisheries, liquor contracts should be through a
public auction or by inviting tenders, and not by private negotiation. The courts regard public auction as a
safeguard against arbitrary executive action.7 But, then, there may be some special circumstances when the
court may uphold award of a contract without inviting tenders for the same.

(1) Kasturi Lal

In Kasturi Lal,8 the Government of Jammu and Kashmir granted to the respondents the right to extract resin
from certain areas without inviting tenders for the purpose. This was challenged on the ground that the terms
on which the contract was granted were highly disadvantageous to the State and entailed considerable loss
of revenue to the Government.

The Supreme Court rejected the contention after reviewing the facts and circumstances in which the grant
was made. The conditions of the grant were that the respondents would set up a factory within the State to
process the commodity, and also hand over a part of the resin extracted by them to the State Government at
a very concessional price. In the circumstances, it was not possible to say that any benefit was conferred on
the respondents at the cost of the State or that the action of the State was arbitrary or irrational. The action of
the Government was "unquestionable and without doubt, in the interest of the State."

It is true that there was no advertisement in the papers inviting offers in respect of the right of extraction of
resin in the area in question, but the extraction rights were given by way of allocation of raw materials for
feeding the factory to be set up by the respondents. If it were a case merely of granting tapping contract
simpliciter then undoubtedly the State would have to auction or invite tenders for securing the highest price.
But since the deal was a part of the proposal to set up a factory, the State was not bound to advertise and it
could enter into an arrangement by negotiation with the concerned party. No favour was shown to the
concerned party as it was much more experienced and definitely superior to the petitioners. On this point, the
Court observed :
"The Court cannot lightly assume that the action taken by the Government is unreasonable or without public interest . .
. . . . There are a large number of policy considerations which must necessarily weigh with the Government in taking
action. Therefore, the court would not strike down Government action as invalid on this ground, unless it is clearly
satisfied that the action is unreasonable or not in public interest . . ."
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(2) Brij Bhushan

The Government of Jammu & Kashmir made three orders in 1978 guaranteeing supply of specified
quantities of oleo-resin, a forest produce, to three persons for five years. The idea was to encourage these
persons to set-up industries within the state based on oleo-resin. These orders were challenged on several
grounds through a writ petition, but the Supreme Court rejected the same in Brij Bushan v. State of Jammu
& Kashmir 9 mainly following its ruling in the earlier case Kasturi Lal v. State of Jammu & Kashmir. 10

The Court found that the price mentioned in the order for supply of oleo-resin was nearly the same as the
average rate at which the commodity was sold in auction at the time. Secondly, there could be no question of
the State Government trying to secure the highest price from these persons since the sale of oleo-resin to
them was not a sale simpliciter but for the purpose of feeding the factories to be set-up by them. The Court
accepted the fact that there was no advertisement inviting tenders to set up the factories and that these
persons had suo motu made offers to set up the factories which the State Government accepted after
negotiations.

In Kasturi Lal, the Supreme Court had already accepted the proposition that the State must be free to
negotiate with a private entrepreneur to induce him to set up an industry in the State. There was nothing at
all to show that the State acted mala fide or out of improper motive or corrupt motive or in order to promote
the private interest of some one at the cost of the State.11

One principle which emerges from these pronouncements is that in its effort to industrialise the State,
Government is free to negotiate with individuals who may seek to establish industries. State need not invite
applications or tenders for setting up any industry; individuals themselves can take initiative to approach the
Government for the purpose and the concerned Government can offer incentives to them within reasonable
limits. This judicial approach seems to be based on pragmatism in order to promote industrialisation in the
country at a quick pace.12 The question has been further considered by the Supreme Court in the Nandlal
case.13

The Kasturi Lal principle was applied by the Bombay High Court in Ramdas Shriniwas Nayak v. Union of
India. 14 A power purchase agreement was entered into, by private negotiations and without inviting any
tenders, between the Maharashtra State Electricity Board and the Dabhol Power Company promoted by the
U.S. based Enron Corporation. The High Court upheld the agreement invoking Kasturi Lal and Sachidanand
Pandey15 saying that inviting tenders is not an inflexible rule and in the instant case it might not have been
an appropriate mode. The court noted that although negotiations for the project went on for more than two
years, no other equally reliable and competent party came on the scene for the particular project. Justifying
the agreement, the High Court observed :
". . . the petitioners have not alleged any mala fides against the respondents. There is nothing to show that any body
was being favoured for any specified reason . . . Negotiation was the only appropriate mode which has been done in a
most reasonable manner . . .16

(3) Omprakash

While allotting quotas of resin (a forest produce in short supply) to several small scale industrial units in the
State, the Government granted quotas to some units but denied the same to the petitioners though they were
similarly situated as others. Independently of Airport (Ramana) and Kasturi Lal, the Supreme Court in
Omprakash v. State of Jammu and Kashmir, 17 declared invalid the allotment of quotas of resin by the
Government to the various industrial units as being in violation of Art. 14 because the selection of the
allottees had no rational relation to the object sought to be achieved in the industrial policy decision of the
State. The State had followed no reasonable basis in making allotments in favour of the new allottees and
denying allotment to the petitioners. In Raja Industries v. G.M. Industries Centre, 18 the
Government-adopted policy for allotting the quotas of soft wood to industrial units in the State was held by
the Kerala High Court as ultra vires Art. 14. "Arbitrariness is writ large on the face of such a policy."

(4) Shiv Charan

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The State granted lease for excavating sand and minor minerals from an area to one person. The grant was
contested by another. The main question before the Supreme Court was whether the grant ought to be made
on an application of a party or by auction between the contending offerers. In State of Uttar Pradesh v. Shiv
Charan Sharma 19 the Supreme Court took the view that such concessions ought to be granted by public
auction rather than on an application of a party as "public interest demands that those who seek the privilege
of extracting under lease from the State" should be asked "to bid against each other, for "public auction with
open participation and a reserved price guarantees public interest being fully survived." The Court therefore
directed the collector to hold an auction in which the two contending parties should be allowed to bid against
each other and to accept the highest bid for the lease.20

(5) Paramjit

The Delhi Development Authority granted licence for extracting Jamuna sand to an applicant. This grant was
challenged by the petitioner through a writ petition in the Delhi High Court. The petitioner argued that he was
a trader in Jamuna sand; that in the instant case, no auction was held nor any tenders invited. The petitioner
was not even aware that the DDA was considering offers for granting licence for excavation of Jamuna sand.
The petitioner argued that the licence ought to have been granted after a public auction. The Delhi High
Court in Paramjit Singh v. Delhi Development Authority 21 quashed the grant of the licence saying that DDA
could not grant largess to a person in its arbitrary discretion or at its sweet will.

(6) Rama

The Railway Administration decided to award catering licences after inviting applications through
advertisement. In the instant case,22 a licence was issued by private negotiation without any advertisement.
The Railway Administration thus gave a complete go by to its own policy decision. Quashing the issue of the
license, the High Court observed : "any deviation and departure of its policy decision without any justifiable
reason itself attracts the wrath of Art. 14 of the Constitution of India."

(7) Shiv Lochan

In an auction for a fishery, the highest bid of the petitioner was accepted and he deposited half of the bid
amount. Later, the fishery was settled in favour of another person for three years by private negotiation. This
was held to be invalid. The court emphasized that public auction with open participation and a reserved price
guarantees public interest being fully survived".

The High Court also ruled that this was in violation of the State's own circulars and instructions on this
matter. The court also invoked the Airport principle : once the terms and conditions for settlement have been
laid down, the Authority would not be competent to go back on them as it may result in undue favour to a
particular person, without affording an equal opportunity to others to take their chance, after relaxation is
made in the terms and conditions of the settlement.23

(8) Durga

The Government invited tenders for lease for collection of sal seeds from Government forests. It accepted
the highest tenders in respect of all forest divisions except three and decided to hold reauction in respect of
these divisions without assigning any reasons for the same. The Allahabad high Court held in Durga
Associates, Raipur v. State, 24 that the refusal of the Government to accept the highest tender was an
arbitrary action. Although the State reserved the right not to accept the highest tender, yet it could not act
arbitrarily and choose any person it liked for entering into contractual relationship. The action of the
Government must be reasonable. "The state cannot act arbitrarily in entering into relationship directly with
third parties but its action must conform to some standard or norm which is rational and non-discriminatory".

Any departure from such test is invalid unless it can be supported or justified on some rational and
non-discriminatory ground. The Government did not produce the relevant file even when directed by the
court. "The inference deducible from the non-production of the file of the case is that either there are no
reasons for reauctioning the forest divisions or, if there are reasons, the said reasons are indefensible." As
there was no 'justifiable basis' to reauction the lots in question, the action of the State in reauctioning the
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same was held to be arbitrary and unreasonable.

(9) Vijay Bahadur

There was an auction of certain forest lots. The conditions for auction of the forest lots inter alia provided that
the Government was under no obligation to accept the highest bid and that no rights accrued to the bidder
even if his bid happened to be the highest, and that the acceptance of the bid at the time of auction was
entirely provisional and was subject to ratification by the competent authority, namely, the State Government.
In the instant case, the bids were provisionally accepted but then all bids were rejected by the State
Government as there was a policy decision to get the work done through the forest corporation rather than
the contractors.

The Supreme Court ruled in State of Uttar Pradesh v. Vijay Bahadur Singh, 25 that the Government's power
to refuse the bids was not confined to the inadequacy of the bids only. There could be a variety of good and
sufficient reasons, apart from the inadequacy of the bids, impelling the Government not to accept the highest
bid. The Supreme Court said that, in fact, the Government had the right, for good and sufficient reasons, not
to accept the highest bid but even to prefer a tenderer other than the highest bidder, for a very high bid may
lead the Government to suspect that no honest and bona fide bidder could possibly offer so much if he
meant to do honest business. In the instant case, the bids were fantastically high giving rise to the suspicion
that the bidders might indulge in illicit felling of trees.26

The Government could even change its policy from time to time. The Government could change the policy
even after the auction and acceptance of the provisional bid, but before its confirmation. It was competent for
the Government to take a policy decision to get the work done through the forest corporation and to reject all
bids, as no contractual rights had come into existence till then in favour of any party. That was a sufficient
justification for the refusal to accept the highest bid.

(10) Delhi Science Forum

In the context of award of licenses to private sector for providing telecom services to the people, the
Supreme Court has observed in Delhi Science forum v. Union of India :27
"The question of awarding licenses and contracts does not depend merely on the competitive rates offered; several
factors have to be taken into consideration by an expert body which is more familiar with the intricacies of that particular
trade. While granting licences a statutory authority or the body so constituted, should have latitude to select the best
offers on terms and conditions to be prescribed taking into account the economic and social interest of the nation.
Unless any party aggrieved satisfies the Court that the ultimate decision in respect of the selection has been vitiated
normally courts should be reluctant with the same."

This case arose out of the Government policy of privatising telephone services hitherto provided by the
Department of Telecommunications. Under S. Section 4 of the Indian Telegraph Act, 1885, the Central
Government is given the exclusive privilege of providing telecommunication services. But, then, the Central
Government is also authorised to grant a licence to any one to provide these services "on such conditions
and in consideration of such payment as it thinks fit."

Referring to the words "as it thinks fit" in S. 4, the Court has said that the discretion conferred on the
Government is not uncontrolled. While granting licences under S. 4, the Government has a "fiduciary duty"
as well. In this connection, the Court has observed :
"The new experiment has to fulfil the tests laid down by the Courts for exercise of a statutory discretion. It cannot be
exercised in a manner which can be held to be unlawful and which is now known in administrative law as Wednesbury
principle."28

The Court refused to go into the question whether telephone services ought to be privatised or not saying
that it is a policy matter which is to be decided by the Government and Parliament, and not by the Court. On
this point, the Court has observed :
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"This Court cannot review and examine as to whether the said policy should have been adopted. Of course, whether
there is any legal or constitutional bar in adopting such policy can certainly be examined by the Court."

Ultimately, the Court found nothing wrong with the selection by the Government of the tenderers for grant of
licences to provide telephone services in various Telecom Territorial Circles.

(11) Omega

The Assam State Electricity Board issued a notice through a newspaper inviting offers for handling its
advertisements from reputed agencies fulfilling certain conditions mentioned in the notice. The petitioner who
fulfilled all the prescribed qualifications (Omega), and the respondent (Frontier Agency) which did not fulfil
some of the qualifications, applied. The Board decided to split its advertisements between the two. The
petitioner (Omega) challenged this decision.

In Omega Advertising Agency v. State Electricity Board, 29 the Assam High Court quashed the order of the
Board splitting up the advertisements as well as of appointing the respondent. Such an action was against
the tenor of the notice inviting offers in which "there was no reservation as to the totality of the
advertisements and as to the requisite qualifications."

The court emphasized that in the ever expanding measure of economic activities of the welfare state, it is
necessary to 'structure and restrict' the power of the executive so as to conform to the rule of law in the
matter of socio-economic distributive justice. It amounts to discrimination under Art. 14 if an authority awards
a benefit or a contract to somebody who is not qualified according to the prescribed standards. Modern State
is the source of much wealth and it is necessary to forbid discrimination in distribution or allotment of this
new kind of wealth.

(12) Kirtikumar

The Indian Oil Corporation invited applications for appointment of a dealer in the Baroda region for kerosene
and light diesel oil. The selection committee selected the petitioner for the purpose. He was endorsed by the
senior sales officer but ultimately he was not appointed. The petitioner challenged this decision through a writ
petition and the Gujarat High Court in Kirtikumar v. Indian Oil Corpn. Ltd., Ahmedabad, 30 quashed the
impugned decision on the ground that there was no reason for the decision and that the power had been
exercised in the most arbitrary manner.

(13) Miscellaneous situations

In the following cases on grant or denial of largess, the administrative action in question has been quashed:

(i) policy restricting export of an item by private parties held to be arbitrary and not rational;31
(ii) refusal to extend the services of the petitioner by one year held to be arbitrary;32
(iii) denial of quota of paper on concessional rate for manufacturing exercise books to new
manufacturers held to be based on no relevant and rational basis;33
(iv) Circular issued by a bank denying financing sale of products of the petitioners as was being
done in case of other manufacturers was held to be arbitrary;34 when the State Bank distributes
largess under a scheme, it cannot deny the same to the petitioners;
(vi) denial of export quota to the petitioners by Nafed in contravention of instructions and trade
notices issued by the Central Government;35
(vii) Arbitrary conferment of benefit;36
(viii) Arbitrary allotment of petrol pumps;37
(ix) Grant of tehbazari rights by a municipal corporation to a party by private negotiations without
any notice or advertisement and without holding auction or inviting tenders;38
(x) excluding a tenderer for award of a contract on a ground dehors the conditions laid down in the
tender notice;39
(xi) Allotment of a petrol pump to a person not eligible under the eligibility conditions.40
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The Madhya Pradesh Government selected the petitioner for establishing a solvent extraction plant. As he
did not fulfil the stipulated conditions, the Government revoked the permission. Subsequently, the
Government changed its policy. The petitioner filed a petition seeking a writ to restrain the Government from
allowing any other person to set up the plant. The petition was rejected as there was no concluded contract
between the Government and the petitioner giving rise to any enforceable right. Before a concluded contract
came into existence, it was open to the Government to change its policy for granting permission to set up the
plant. Even if there were a concluded contract, a writ petition would not be a suitable remedy to enforce the
same.41

In State of Tamil Nadu v. C. Vadiappan, 42 the Commissioner of Prohibition recommended the petitioner to
the Government for the grant of the privilege for supply of arrack by wholesale in a district. The Government
rejected the petitioner on the ground that he was carrying on money-lending business, and so could not
devote his full attention to the wholesale business of arrack. The Madras High Court ruled that the action of
the Government was invalid as it was arbitrary and unreasonable, and based on extraneous or irrelevant
consideration as there was absolutely no prohibition in the rules for an arrack wholesaler to carry on any
other business. The court issued mandamus to the Government to issue the said privilege in favour of the
petitioner.43

The State Government disposed of tendu patta by calling tenders. The tender contained a clause for renewal
of contract if certain conditions were fulfilled. The Government renewed the patta of some purchasers but not
of others under this clause. The High Court held this to be discriminatory.44

(14) Ram and Shyam

It is a well established principle now that mineral rights ought not to be granted through private negotiations
but by holding a public auction where all those who may be interested in the matter may participate, and bid
against each other. In the words of the Court : "Public auction with open participation and a reserved price
guarantees public interest being fully subserved."45

The Haryana Government held an auction of minor mineral quarries in Faridabad District. The bid of the
petitioner (Rs. 3.87 lacs) being the highest was accepted by the presiding officer. One of the respondents
then wrote a letter to the Chief Minister making all kinds of allegations against the petitioner and offering a
royalty of Rs. 4.50 lacs. The Chief Minister accepted the respondent's offer and rejected the petitioner's bid
who then challenged the Chief Minister's action through a writ petition.

The Supreme Court quashed the grant in favour of the respondent in Ram and Shyam Co. v. State of
Haryana. 46 Accepting the contention that the Government was not bound to accept the highest bid,47 the
Court reiterated the principle laid down in International Airport Authority48 and Kasturi Lal49 that "a welfare
state as the owner of the public property" does not enjoy the same freedom as a private owner to deal with
his property. A welfare state exists for the common good of the largest number and, therefore, it must always
strive to obtain the best price for public property so that the money can be used for common good. Also, the
State must choose the beneficiary "fairly and without discretion and without unfair procedure".

In the instant case, the petitioner whose highest bid was rejected by the Government was not given any
opportunity to improve upon his bid or point out the falsity of the allegations made against him, and a
unilateral offer, secretly made by the respondent, was accepted by the Government. So, the Court ruled :
"The appellant suffered an unfair treatment by the State in discharging its administrative functions thereby
violating the fundamental principle of fairplay in action." Reiterating its approach in Guruswamy,50 the Court
objected to public property being disposed of through "a private secret deal between the Chief Minister and
the offeror". Disposal of State property must be by such method as would grant an opportunity to the public
at large to participate in it.

One crucial aspect of Ram and Shyam may be noted here. Before going into the merits of the case, the
Court itself held a mini-auction between the petitioner and the respondent and the highest bid for the same
quarries was 25 lacs a figure much higher than what the government had settled for. This case is a classic
example to show how, in the words of the Court, public property in which the entire community is interested
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is being "squandered away for a song by persons in power who hold the position of trust" causing huge loss
to the public exchequer. What happened in this case proves how "judicial intervention can serve larger public
interest". The Court ordered the award of the mining rights in question to the appellant at Rs. 25 lacs per
year.

(15) Chaitanya

A case of wrongful grant of concession may be mentioned here because of its significant political fall out.
The Karnataka Government granted contracts for bottling liquor to 8 out of 131 applicants. The worth of the
contracts was over Rs. 55 crores. The award of the contracts was challenged in the Karnataka High Court.
The High Court declared that the awarding of the contracts "smacks of arbitrariness and is a flagrant violation
of the rule of law" and that "it shocks the judicial conscience". The court found that out of the 131 applicants,
124 were eligible for the award of the contracts but all except one were rejected. Out of the eight persons
selected for the award of the contracts, seven were not eligible under the relevant excise rules prevailing in
the State at the time. Rules were changed to accommodate the awarding of contracts to non-eligible persons
only after the filing of the writ petitions. The court found certain other flaws and infirmities in the award of the
contracts.

A very curious circumstance which came to light was that the Government rejected the application of a
company owned by itself and which supplied 60% of the arrack which was to be bottled. Commenting on this
aspect of the case, the High Court observed that no one acting reasonably "would have excluded the
application of an eligible state-owned undertaking which had all the facilities and prefer a private ineligible
applicant". The contracts of the eight applicants were cancelled by the High Court. The verdict of the High
Court led to the resignation of the Chief Minister but he was later re-elected by his party as its leader and he
resumed the Chief Minister's office.

On appeal, the Supreme Court upheld the verdict of the High Court. The Court characterised the award of
contracts to ineligible persons in preference to eligible persons as "an unusual wilful and perverse way of
exercising the power of distributing state largess".51 In the instant case, it was argued on behalf of the State
that the State Exchequer would not suffer in the least by the award of the contracts in question. To this the
Court replied :52
"Thus even if the award of the bottling contracts was not at the expense of the exchequer, there could be no question
that what was done was the distribution by the State of favours loaded with bounty by way of enabling the recipients of
the favours to earn enormous profits."

The case is a sad commentary on the way the State Governments confer largess on private parties. They do
not observe the norms which have been laid down by the Supreme Court in a series of cases. The
Governments do not always observe adequate caution in conferring largess. Many a time, the motivation is
to confer benefits on a few favoured individuals rather than provide opportunity to all eligible persons to
share the benefits. The Governments seem to be living still in the pre- Airport Authority era53 and do not
seem to have imbibed the guidelines laid down by the Supreme Court in that case and many other cases
since then in the matter of conferring largess.

(16) Reddy

Another case of undue conferral of a benefit, and which also took over political overtones, resulting in the
resignation of the Chief Minister, occurred in Andhra Pradesh. The Chief Minister passed an order granting
recognition to 20 medical and dental Colleges to be run by private bodies and charging capitation fees. One
of these colleges was to be set up by a society consisting of CM's close relations, viz., his brother and wife.
The A.P. High Court quashed the order saying : "The Chief Minister in all fairness should have avoided any
association with the decision". The Court also said that the decision was vitiated by bias and this had
reduced the Government to a mere "signing machine."54 The decision was affirmed by the Supreme Court.55

(17) Nandlal
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According to the Excise Rules made by the Madhya Pradesh Government, a licence for manufacture or sale
of country liquor may be disposed of in any of the four different modes, viz., tender, auction, fixed licence fee,
or such other manner as the State Government may by general or special order direct. Buildings for seven
distilleries were constructed by the Government on its land. These were being run by private parties under
licence by the State Government on rent agreed between the Government and the parties concerned. The
licence was given for five years. On 30th December, 1984, the Government took a policy decision to permit
these seven persons to set up their own distilleries at new sites. In 1985, contracts were entered into
between these parties and the Government permitting them to establish their own distilleries. The State
Government agreed to issue the licences to these distilleries for five years subject to renewal thereafter. The
policy decision was challenged through writ petitions in the High Court of Madhya Pradesh which set aside
the same under Art. 14. The High Court's objection was that the grant of licences to the seven distillers for
manufacture and wholesale supply of country liquor to the exclusion of other persons could not be justified
under Art. 14.

The matter then came before the Supreme Court by way of appeal. The Supreme Court reversed the High
Court. The main argument before the Supreme Court in Nandlal was that the policy decision of the
Government that the licences to construct new distilleries should be given to the existing distillers and the
licences to manufacture liquor and supply it in wholesale to retail dealers should be granted to them alone to
the exclusion of other liquor contractors without holding an auction or inviting offers which would give an
opportunity to all liquor contractors interested in setting up new distilleries and manufacturing and supplying
liquor to compete for the grant of such licences was arbitrary and irrational.

The Supreme Court, however, ruled that the grant of the liquor manufacturing and distributing licences to the
existing distillers was valid under the rules which authorised the Government to give such licences by private
negotiation. The Court pointed out that although no one has a fundamental right to carry on trade or business
in liquor, yet when the State decides to grant such right or privilege to others the State cannot escape the
rigour of Art. 14. "It cannot act arbitrarily or at its sweet will. It must comply with the equality clause while
granting the exclusive right or privilege of manufacturing or selling liquor." But, the Court clarified that having
regard to the nature of the trade or business, it would be slow to interfere with the policy laid down by the
State Government for grant of licences for manufacturing and sale of liquor. Also, in matters of economic
policy, the Court would hesitate to intervene and strike down what the State Government had done unless it
appears to be plainly arbitrary, irrational or mala fide. The Court upheld the impugned Government policy in
Nandlal56 on two grounds :

(1)) Although superficially it may appear that the entire cake in liquor manufacturing and wholesale
trade was handed over to the existing distillers leaving out other liquor contractors, yet, in
reality it was not so. It is possible that other liquor contractors might also be considered if they
make similar applications.
(2)) There were many good reasons for the State Government to embark on the impugned policy.

In this connection, the Court stated, referring to the Kasturi Lal's case :57
". . . When the State Government is granting licence for putting up a new industry, it is not at all necessary that it should
advertise and invite offers for putting up such industry. The State Government is entitled to negotiate with those who
have come up with an offer to set up such industry."

On this basis, the Court justified negotiation by the State Government of the terms and conditions for the
setting up of new distilleries with the existing distillers. The Court was satisfied that there was no mala fides
or any improper or corrupt motive on the part of the State Government in reaching the policy decision in
question.58

This case is one more illustration of the keen competition between various interests to participate in the
bounties which the State has power to confer. It seems that Nandlal59 represents some descent on the part
of the Supreme Court from the lofty ideal it advocated in Airport.60 The view taken by the Court that it would
hesitate to interfere with economic policies may be alright as regards the formulation of policies but the Court
cannot escape from the responsibility of policing the implementation of the policies. Policy implementation
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has to be distinguished from policy-making. In the instant case, while the State's new policy to grant
manufacturing rights to private individuals could not be questioned, it could certainly be questioned as to why
only the existing distillers were considered for the purpose and no one else.

It is doubtful if the Kasturi Lal' s61 proposition would apply in the instant case : the liquor distilling industry
was not entirely new to the State; it was already in existence; only the basis of carrying it on in future was
being changed. There were a number of persons interested in setting up such an industry in the State; when
the State was going to adopt a new policy why could it not publicize the new policy and invite offers from all
those who might be interested therein. There is no question of mala fides62 here but of discrimination in
denying equal opportunity to others to compete, and conferring a lucrative benefit on a select few.

Time seems to have come for the Supreme Court to seek to lay down more definitive norms for the award of
government contracts and conferring of largess. The norms should be such that, barring exceptional
circumstances, all those who are interested in an enterprise get an equal chance to compete. Even if the
state may be conceded the right to negotiate with the concerned persons, and not always resort to tender or
auction, there is no reason why it cannot by notification inform the people about its proposals and invite
offers from all those interested and then negotiate with them to secure the terms and conditions best suited
to the State. It is very important that the norms be such as to reduce to the extent possible any chance of
corruption on the part of administrators in granting benefits to the people. This matter is going to be the bane
of the future Indian polity and hence a closer court supervision is necessary in this area.

(18) Vishnudas

Permits of some permitholders for routes which overlapped with the notified routes were curtailed. But there
were other permit holders in the same class having stage carriage permits for certain routes parts of which
were overlapping with the notified routes and yet these permits were not curtailed and they continued to ply
their stage carriages on the notified routes. The Supreme Court ruled in Vishnudas Hundumal v. State of
Madhya Pradesh 63 that there was gross discrimination between the transport operators in the same class in
that some have their permits remaining intact with right to ply their vehicles on the notified routes and some
others whose permits are curtailed. This is discrimination between persons in the same class. The court
declared that curtailment of the permits of the petitioners would be of no effect and, consequently, all
operators similarly situated were similarly treated. The Court said :
"When discrimination is glaring the State cannot take recourse to inadvertence in its action resulting in discrimination.
The approach is, what is the impact of State action on the fundamental rights of the citizen."

When denial of equal protection flows from State action, and has a direct impact on the fundamental rights of
the petitioners, the court has to remove the discrimination.64

(19) Daya Shankar

In Daya Shankar Singh,65 on the other hand, the Allahabad High Court quashed the order of the conservator
of forest refusing to grant extension to contractors. In this case, clause 4 of the standing order issued by the
State Government empowered the conservator to grant extension to a contractor for cutting trees if he was
not able to complete the work of cutting on account of extraordinary circumstances beyond his control. The
petitioners had entered into contract with forest authorities to complete the work by March 1981. They
applied for extension of time on the ground that on account of acute paucity of labour they could not
complete the work. The conservator rejected the applications on the grounds that--(i) the petitioners should
have taken only that much of forest lots which they could have worked within the time stipulated; (ii)
petitioners failed to obtain permission to commence work with delay; (iii) non-payment of late fees; and (iv)
arrears of sales tax.

The court pointed out that while considering extension, the conservator could not act arbitrarily at his sweet
will like a private individual. He was expected to act reasonably and according to the standing orders. Any
departure from the principles of reason or equality would vitiate his order. The court held that the question of
paucity of labour, as pleaded by the petitioners, was a relevant factor which the conservator was required to
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consider. He, however, evaded to express any opinion on that question. Thus, the sole ground for seeking
extension was not at all considered by the conservator. He did not apply his mind to that ground and,
therefore, his order was vitiated. The grounds for refusal to grant extension such as late payment of
instalments, arrears of sales tax etc. indicated that the conservator acted beyond the scope of standing
orders and those grounds were irrelevant for passing the order.

(20) Minhas

The Indian Statistical Institute appointed its director without any advertisement for the post, although a
bye-law of the Institute does require that the vacancy in the post of director should be suitably advertised.
Although the Institute is a non-statutory body registered as a company, it has been held to be an 'authority'
for purposes of Art. 12.66 Although the bye-law does not have statutory force, the Institute was nevertheless
held bound to comply with it.67

In B.S. Minhas v. Indian Statistical Institute, 68 the Supreme Court referred to the principle laid down in
Airport69 that an administrative body must be "rigorously held to the standards by which it professes its
actions to be judged." The Court ruled that it was obligatory on the part of the Institute to follow its bye-laws
as the "bye-laws have been framed for the conduct of its affairs to avoid arbitrariness." In the instant case,
the appointment made was quashed as it had been made without any publicity. The Court emphasized that
compliance with the law seemed necessary in the name of fairplay. If a vacancy is advertised, all persons
eligible for the post could apply and the selection committee will thus have a wider area of choice and there
would arise no doubt of arbitrariness in the mind of eligible candidates.

S. 57(2),Motor Vehicles Act, 1939, provided for suo motu application for grant of stage carriage permit. The
Patna High Court has ruled that when RTA proposes to issue fresh permits for any route, it should invite
applications through an advertisement, and then consider all the applications received along with
applications made suo motu otherwise there will be discrimination as many persons interested in permits
may not make applications in the absence of proper information. The system will also be open to
manipulation.70

(21) Doordarshan

The Supreme Court has emphasized that while accepting proposals for T.V. serials, there must be fairplay in
action. The authorities like the Doordarshan should act fairly and their action must be legitimate and fair and
transaction should be without any aversion, malice or affection. Nothing should be done which gives the
impression of favouritism or nepotism.71 The Court stated that while "fair play in action in matters like the
present one is an essential requirement," "free-play in the joints" is also a necessary concomitant for an
administrative body functioning in an administrative sphere or quasi-administrative sphere. Judged from this
stand point of view in the instant case, ruled the Court, that "though all proposals might not have been
considered strictly in accordance with order of precedence these were considered fairly, reasonably,
objectively and without any malice or illwill."

The Gauhati High Court has emphasized that there should be no discrimination in allotment of government
advertisements to different newspapers of the same category.72

(22) Mahindra

The Government of Andhra Pradesh issued a circular directing all Government

departments/companies/corporations/municipal boards/panchayats to purchase the light commercial
vehicles manufactured by the Government company. Such purchases could be made without going through
the tender exercise. If any other vehicle was to be purchased prior sanction of the Government was needed.
On being challenged by a manufacturer of light commercial vehicles, the High Court declared the circular
void on several grounds, e.g. : (i) it was not authorised by any law; (ii) it was discriminatory in nature vis-a-vis
Art. 14; (iii) the product produced by the Government company was to be purchased without any tender
formalities which was invalid; (iv) the product of the Government company was costlier as compared to the
product of the petitioners; it was not proper to direct that all public authorities should purchase the product of
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the Government company irrespective of its price; (v) the State cannot act arbitrarily in conferring largess to
whomsoever it likes.73

(23) Mahajan

A municipal council awarded a contract to build a multi-storeyed commercial complex on municipal land to a
contractor after inviting tenders for the purpose. To finance the project, the municipal council resorted to a
kind of self-financing scheme, i.e., a part of the proposed building was to be used by the municipal council for
its purposes and the rest was to be let out by the contractor for a number of years. Thereafter, the building
was to revert to the municipality itself. On being challenged, the Supreme Court upheld this unconventional
scheme as reasonable.74

(24) Tata Cellular

Reference may be made here to Tata Cellular v. Union of India. 75 This case also arose out of the
Government's policy to privatise cellular mobile telephone service.

The Government of India invited tenders from Indian companies with a view to license the operation of
cellular mobile telephone service in the four metropolitan cities of India, viz., Delhi, Bombay, Calcutta and
Madras. At the end of the day, selections made by the Government were challenged in the courts as being
vitiated by arbitrariness or unfairness. The matter came before the Supreme Court. The Supreme Court has
laid down the principle that "the principles of judicial review would apply to the exercise of contractual powers
by Government bodies in order to prevent arbitrariness or favourities"76 The Court has also asserted that the
principles laid down in Art. 14 of the Constitution have to be kept in view while accepting or refusing a tender.
The Court has thus asserted : 77

"Where the selection or rejection is arbitrary certainly this court would interfere"

The Court has however accepted the reality of the situation that there are "inherent limitations" in the
exercise of the power of judicial review in this area.

The Court has insisted that the criteria evolved for making selections from the tenderers must be "uniformly
and properly" applied to all tenderers.78

In the end result, while the Court rejected several arguments against the ultimate selection made by the
Government from out of the several tenderers, the Court, nevertheless, found one flaw therein; viz that one
tenderer was wrongly excluded from consideration of his tender, and one party was wrongly included in the
select list. The Court directed that these two cases be reconsidered.

A special feature of Tata Cellular is that the court considered the question of bias involved in the selection
process, but negatived the same on the ground of "necessity."79

(25) Hindustan Development

If an auction is held, it is open to the Government to reject the highest bid but it should be done for valid
reasons and in public interest and not on unreasonable or arbitrary grounds.80

Some valid reasons inter alia for rejection of the highest bid may be : there was no proper publicity for the
auction; bidders were prevented from participating in the auction; the bid was far below expectations or was
unreasonably low. In the following case,81 the highest bid was not accepted because long after the auction, a
party who had not participated in the auction, made an offer higher than the highest bid at the auction. The
Court objected to the non-acceptance of the bid in the absence of a my proof that the auction was not held in
a fair manner.

The Supreme Court has observed in the case noted below,82 that when the highest tender is rejected,
reasons must be recorded. Also, reasons sufficient to indicate the stand of the appropriate authority should
be communicated to the concerned parties unless there be any justification for not doing so. This ensures
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credibility to the government action, disciplines public conduct and improves the culture of accountability.

The Government announced a scheme to finance installation of pumpsets in a few districts but directed that
these sets be purchased only from two specified co-operative society manufacturing the same and not from
any other dealer. This decision was challenged by the pumpset dealers as violation of their fundamental right
under Art 19(1)(g) of the Constitution. The Government justified its decision on the ground of avoidance of
malpractices. The Government argued that the decision was made in the interest of effective implementation
of the scheme. The Supreme Court upheld the scheme.83 The Court argued that no restriction was placed
on the dealers who remain free to carry on their trade and so Art. 19(1)(g) was not infringed. The Court
observed that "the Constitution does not recognise franchise or rights to business which are dependent on
grants by the State or business affected by public interest."

(26) Ramakishan

Enhanced stipends were made payable by the State of Andhra Pradesh to the students of Agricultural
University as well as students of medical colleges, but from different dates. The Supreme Court ruled this to
be discriminatory under Art. 14 as the State Government failed to show that there was any reasonable basis
or intelligible differentia for fixing different dates for award of enhanced stipends to post-graduate agricultural
and medical students, especially when the Government had been maintaining parity all along between
students of both these institutions.84 When the action of the Government was challenged on the ground of
arbitrariness and discrimination, it was for the Government to pled justification for fixing the two different
dates in the matter. But Government did not place any material before the court in that regard.

(a) Withdrawal of a benefit

(1) Mahabir Auto

The petitioner had been distributing, for over 19 years, lubricating oil supplied by the Indian Oil Corporation,
a Government undertaking. The Corporation then decided to cease the supply of oil to the petitioner. He
challenged the Corporation's decision through a writ petition. In Mahabir Auto stores v. IOC, 85 the Supreme
Court ruled that the decision of a public authority under Art. 298 is an "administrative decision and can be
impeached on the ground that the decision is arbitrary or violative of Art. 14 of the Constitution of India on
any of the grounds available in public law field."86 The Court insisted that in the instant case, the Corporation
ought to have followed a "reasonable, fair and just" procedure, i.e., "the process which normally be accepted
to be followed by an organ of the state and that process must be conscious and all those affected should be
taken into confidence." The Court therefore directed the Corporation to consider afresh the appellant's
submissions and reach a decision based on "fair play, equity and consideration by an institution like IOC. It
must act fairly."

(2) Alok Varma

The Indian Oil Corporation issued a letter of intent to the petitioner allotting a petrol pump to him. Later, the
corporation cancelled the letter of intent. The Patna High Court quashed the order of cancellation for several
reasons e.g.

(1) No reasons were given for making the order;

(2) No information has been given to the court as to why the letter of intent has been cancelled;
(3) In the absence of any material supporting the order, it must be presumed to be arbitrary.
Arbitrariness is anathema to law.

The court maintained that over time judicial interference with government action with respect to contractual
matters has been on the rise. When the matter falls within the reason of public law rather than of private law
the High Court can take cognizance of the same under Art. 226.87 Government or its agencies must act fairly
even in contractual matters.88

Onkar Lal Bajaj & Ors. v. Union of India, 89 constitutes a very significant pronouncement in this area. Petrol
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pumps were allotted to a large number of persons all over India as per the guidelines laid down for the
purpose. Allegations of political patronage were made in the press against some of the these allotments. As
a result thereof, the government issued an omnibus order cancelling all allotments.

The order was challenged as being arbitrary and violative of Art. 14. On the other hand, the government
justified the making of the order to uphold probity in government, ensure fairplay in action and in larger public
interest.

The Supreme Court however quashed the order as being arbitrary, not reasonable, against fairplay in action
and being violative of Art. 14. Insinuations were made only against a few allotments. How could those
against whom there were no allegations be clubbed together with those few against whom there were
allegations of political patronage. The two were unequal :

"To put both the categories--'tainted' and the rest--on par is wholly unjustified, arbitrary, unconstitutional and violative of
Art. 14."

The Court appointed a committee to scrutinize the alleged tainted allotments so as to determine the validity
of allotments in such cases.

(b) Liquor Contracts

It is settled law that no one has a fundamental right to carry on trade or business in liquor.

The judicial attitude towards liquor trade has been stated by BHAGWATI, J., in State of Madhya Pradesh v.
Nandlal as follows :90 though the State in exercise of its regulatory power could absolutely prohibit
manufacture, storage, export, import, sale and possession of intoxicants as no one could claim any
fundamental right in such an activity, when the State decides to grant such right or privilege to citizens, it
could not act arbitrarily and escape the rigours of Art. 14. At the same time, in view of the inherently
pernicious nature of the commodity, the Court would be slow to interfere with the policy of the Government
and allow a large measure of latitude in determining its policy of regulation. The Court would interfere only in
plain cases of arbitrariness or mala fide exercise of power.91

The Supreme Court has observed in Doongaji & Co. v. State of Madhya Pradesh :92

"Further when the State has decided to part with such rights or privileges to others, then the State can regulate
consistent with the principles of equality enshrined under Art. 14 and any infraction in this behalf at its pleasure is
arbitrary violating Art. 14. Therefore, the exclusive right or privilege of manufacture, storage, sale, import and export of
liquor through any agency other than the State would be subject to the rigour of Art. 14...."

Cases arise frequently in connection with excise auctions and liquor contracts. Liquor trade being very
lucrative both for the State as well as the liquor traders, disputes arise frequently between the State and
those who carry on that trade. Huge sums are involved in these transactions. The right to carry on liquor
trade is auctioned by the State every year. These are known as 'excise auctions' and are held in every State
under the relevant statutes and the rules. The amount realised by the State through liquor licence is
regarded "neither in the nature of a tax nor in the nature of an excise duty" but "in the nature of a price" as
consideration for the State "parting with its privilege in favour of the licensees," though an important purpose
to sell the exclusive right to vend liquor is to raise revenue. Since the State has exclusive rights regarding
manufacturing and sale of intoxicants, it is open to the State to part with these rights, which are in the nature
of a privilege, for consideration. Thus, liquor licence fee is the price for acquiring from the State the privilege
of selling liquor.93

These contracts are of a statutory nature as they are governed by relevant statutes and rules. All the States
in India have enacted Excise Laws for raising excise revenue. As already noted, Art. 299(1) is not applicable
to statutory contracts.94 Therefore, liquor contracts being statutory in nature are exempt from the scope or
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Art. 299(1). As the Supreme Court has reiterated : "There is a distinction between contracts which are
executed in exercise of the executive powers and contracts which are statutory in nature."95 Also, these
contracts being statutory in nature, their incidents are not governed purely by the law of contracts. Public law
and private law are intermixed in this area and it is difficult to assess where private law ends and public law
begins.

The Government desires to secure the best price for parting with the privilege of selling liquor. A public
auction is considered as one of the modes of getting the best possible price. Such auctions are held
periodically in the States. The mere offer of a bid does not create any vested right in the bidder. The
concerned excise authorities keep in their hands the power to finally accept or reject any bid.

On the Government finally accepting the bid given at the auction, the contract between the bidder and the
Government becomes concluded, and no agreement

conforming to Art. 299(1) is necessary.1 Thus, the Chowdhry2 view applicable to auctions does not apply to
liquor auctions. The incidents in this area are determined by the relevant statute and the rules made
thereunder and the terms of the agreement between the excise authorities and the bidder.3

At an auction for liquor shops, the Government rejected all the bids as it was of the opinion that inadequate
price had been offered as a result of collusion among the bidders. The Government then invited tenders,
accepted tender for one shop and rejected the rest on the ground of inadequate price. Thereafter, by
negotiating the price with some of the tenderers, it was able to secure substantially more than what was
offered before. The Supreme Court did not find anything wrong with this procedure in State of Orissa v.
Harinarayan. 4 The Court said : "The Government is the guardian of the finances of the State. It is expected
to protect the financial interest of the State." The Government could reject all the bids at an auction for liquor
licences if it thought that these were inadequate or on the lower side.

The petitioner submitted a tender for a group of shops to sell country liquor and made the required earnest
deposit. His was the highest tender. The concerned authorities then sought to auction individual shops in an
effort to get higher bids, but no bids were received. The tenderer protested against this procedure in a
telegram to the excise commissioner and also withdrew his tender. But the department accepted his tender
and called upon him to furnish the cash security. On the tenderer failing to comply with this demand, the
department forfeited his earnest money. The tenderer challenged the order of forfeiture of the deposit, and
the High Court upheld the same as valid and legal under the excise rules and the conditions of the tender
which had statutory force, by which the tenderer was bound.5

(1) Purxotoma

For the lease of a Government distillery, tenders were invited. A term of the tender was that the highest
tender "shall ordinarily be accepted but the Government reserves the right to select any tender or reject all
tenders without assigning any reason therefor." The Government did not accept the highest tender but
granted lease to the person with the second highest tender whose offer, after negotiation, was increased by
Rs.1000 over the highest tender. This was challenged on the ground that it was incumbent upon the
Government to give reasons for the rejection of the highest tender and that the said clause in the terms of
the tender was void under Art. 14 because it enabled the Government to reject the highest tender without
assigning any reason therefor. The Goa Judicial Commissioner ruled that the Government could reject the
highest tender but that it should assign good reasons for doing so and that it could not act in a discriminatory
manner.6

On appeal, the Supreme Court overruled this view. Depending upon Achutan,7 the Court ruled that the
clause in question was not violative of Art. 14 and that the Government was not bound to accept the highest
tender. The Court said that there was no allegation of mala fides against the authorities in granting the lease
or of any such arbitrariness as should call for interference by the court."8

It is doubtful whether this ruling remains tenable after the Airport case. The reasons to reject the highest bid
were not clear and a token increase of Rs. 1000 could hardly be a good reason to reject the highest bid,
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particularly when the increase was achieved by negotiations behind the back of the highest bidder. If the
relevant authority refuses to sanction the bid by approaching the matter in a wrong manner, or by applying
incorrect criteria, or by taking into account irrelevant considerations, the order refusing to sanction the bid
may be quashed through a writ.9 This is only applying the general principles of Administrative Law regulating
administrative discretion.10

An auction was held for granting exclusive privilege of selling country liquor. The Excise Commissioner who
was the confirming authority disapproved all the bids on the ground that these were very low and ordered
reauction. In calculating the adequacy of the bids, the Commissioner applied one formula rather than the
other. Refusing to interfere, the Supreme Court said that it was not for the Court to substitute its judgment in
a proceeding under Art. 226 and say that the other formula would have been better.11 The discretion was
vested in the Commissioner and not in the court.

In another case, when the Excise Commissioner set aside the auction, and his order did not show that he did
apply his mind to the matter or that he addressed himself to the question whether there was any ground to
do so, the order was quashed.12 But he can cancel the auction and order re-auction in the interest of the
revenue.13

When the Government makes a demand for payment of a sum of money becoming due under the conditions
of a liquor licence, natural justice does not come into play.14 The payment is neither a 'fee' nor a 'tax'. If,
however, a liquor licence is sought to be cancelled, then natural justice does come into play.15 A licence
cannot be cancelled without giving a hearing to the licensee concerned, but "the same principle of natural
justice does not come into play when the demand is merely for payment of a sum becoming due under the
conditions subject to which the licence was granted".

(2) Ramakishan

In State of Haryana v. Ramkishan Pritam Singh & Co., 16 after the bid of the respondents was accepted,
they started to work the contract but did not deposit anything towards the agreed licence fee which was
payable in several instalments. The Excise Commissioner could have cancelled the respondents' licence
under a statutory rule. But instead of taking such a drastic step, he issued a demand notice to the
respondents. The respondents prayed for a writ to quash notice but the petition was rejected. The Court said
: "There was a fundamental breach of an essential condition by the respondents. In a commercial contract of
this nature, for the performance of which definite time has been fixed and the contract specifies the mode of
payment. . ., time is of the essence of the contract. Rule 36(23)(1) of the Rules specifically makes time of the
essence."

(3) Damodaran

Section 28 of the Kerala Abkari Act enables the Government to recover, as land revenue," all duties, taxes,
fines and fees payable to the Government," under any provision of the Act or" any licence or permit issued
under it, and all amounts due to the Government by any grantee of a privilege or by any farmer under the Act
or by any person on account of any contract relating to the Abkari Revenue." In A. Damodaran v. State of
Kerala, 17 the appellant was a successful bidder at an auction sale of some toddy shops by the Government
of Kerala for the period from April 1, 1967 to March 31, 1968. The appellant failed to pay some part of the bid
money after he had been allowed to run the shops auctioned, and, therefore, proceedings were started
against him under Section 28 for recovery of the amount due. He came to the court for quashing the
proceedings on the ground that, as no formal agreement had been executed between him and the
Government according to Art. 299, he was not liable to pay the amount due.18

The Supreme Court ruled that execution of a contract as per Art. 299 was not a condition precedent for
recovery of the amount due under Section 28, and that statutory duties and liabilities could be enforced in
accordance with statutory provisions. It was not a condition precedent to recovery of any amount due under
S. 28 that it should be due under a formally drawn up and executed contract. The successful bidder had
been permitted by the excise authorities the exercise of the privileges. He was a grantee of the privilege
under the Act. Liability to pay rental for the shops arose not only by virtue of the agreement but also by the
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provisions of Section 28 of the Act. In the instant case, the Government had performed its part of the bargain
and allowed the appellant to start selling liquor. The appellant, thus, became liable to perform the
corresponding obligations under the conditions imposed in pursuance of statutory provisions. The Court
ruled : "This reciprocity of obligations, quite apart from its basis in agreement, had thus acquired an operative
force resting on statutory sanction and equity."19 Thus, while the overwhelming tenor of the judgment in
Damodaran was to enforce the liability under the said statutory provision in spite of the absence of a formally
executed contract fulfilling the requirements of Art. 299(1), there are observations in the judgment giving the
impression that the Court would have enforced the appellant's liability under S. 70 of the Contract Act even if
there was no such statutory provision. The Court did point out that the claim for compensation or restitution
could be enforced under S. 70 of the Contract Act quite apart from the requirements of Art. 299.20

(4) Rambabu

In an auction held for the grant of a licence for one year to sell country liquor and bhang, the petitioners were
the highest bidders. Because of certain interim orders passed in certain writ petitions, this bid could not be
accepted, but an agreement was arrived at between the petitioners and the district excise officer, under
which the petitioners were allowed to run the shops temporarily on daily payment basis in accordance with
their bid amount until the writ petitions were finally disposed of. The petitioners started the shops but
defaulted on payment as agreed. When the Government gave notice that the amount due would be
recovered as arrears of land revenue, the petitioner instituted the petition seeking a direction against the
Government not to enforce the said notice. It was contended on behalf of the petitioners that as no contract
had been executed in writing in accordance with Art. 299, the said agreement was not enforceable. But the
court rejected this argument as the petitioners had derived benefit under the said agreement by actually
running the shop.21

(5) Kishori Lal

The State of the Uttar Pradesh has the U.P. Excise Act, 1910 and the U.P. Excise Manual. State of Uttar
Pradesh v. Kishori Lal 22 arose out of an auction held in Lucknow in 1951. The respondent offered the
highest bid. He did not deposit 1/6th of the bid as required by the Excise Rules. Time was given to him to
deposit the money. When he failed to do so after several reminders, auction was held again. There was a
shortfall in the bid amount this time and, therefore, the Government claimed that the loss be made good by
the previous bidder, the respondent. The Supreme Court considered the question whether there was any law
or contract which compelled the respondent to make good the loss to the State. There was no law under
which the respondent could be asked to make amends for the shortfall. A rule was cited for the purpose from
the Excise Manual but the Court held that it was not a rule but only a sort of guiding norm and had no
statutory force.23

The next question was : Was there a concluded contract between the State and the respondent? Under the
rules, the final acceptance of the bid was subject to the sanction of the Excise Commissioner. In its absence,
the bid could not be said to have been finally accepted. In this case, the bid was never sanctioned by the
Commissioner. Consequently, there was no concluded contract between the parties to make the respondent
liable for the alleged loss. This point had been decided earlier in Union of India v. Bhimsen Walaiti Ram. 24
Until the bid was confirmed by the Commissioner, the contract of sale was not complete and till then the
bidder whose bid had been provisionally accepted could withdraw it without being liable to any damages.

The minority judge (VENKATARAMIAH, J.), however dissented from the majority view and held the
respondent liable to make good the loss. He said that in the Bhimsen case, the bid had been disapproved by
the Commissioner and what was said there by the Supreme Court was in that context. But, in the instant
case, there was no disapproval of the bid. He did not refer to the question whether the said 'rule' was a
binding rule. He depended upon the Commissioner's assertion that this condition had been mentioned in the
sale proclamation. The majority did not accept this assertion as no copy of the proclamation had been
produced before the Court. The minority judge was ready to accept this assertion as it "cannot be rejected".
According to his view, whatever an official asserts has got to be accepted by the Court without any other
supporting evidence! As regards the Commissioner's power to sanction the bid, the judge suggested that his
power was only to set it aside; if it was not set aside, the auction would be complete.
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The stand of the minority judge seems to be implausible.25 He referred to Damodaran to support his view
that the liability to pay may arise even without a formal contract under Art 229. But, in that case, the initial
deposit had been made by the highest bidder and he had also started selling liquor, but did not pay the
balance of the bid money. In these circumstances, it was ruled that the balance could be recovered from him
even if there was no formal contract. But the facts of the instant case differed from Damodaran in one vital
respect, viz., no initial deposit had been made and no further action had been taken in terms of the auction.

The view of the majority appears to be preferable as it is straightforward, logical and according to law. It is
true that this view may create some problems for the Administration. But, in the instant case, the difficulties
arose due to administrative laxity in several respects. For example, the relevant rules had not been notified in
the Gazette, thus, denuding them of legal effect;26 non-production of the auction notice to show that the
so-called condition was duly notified to the bidders; not insisting on immediate deposit of 1/6th of the bid
amount as the said condition stipulated. As the facts showed, had the bid of the bidder been cancelled for his
failure to make the initial deposit immediately, and the second bid accepted, then the Government would
have lost only Rs. 1500. It is also not clear as to why the Commissioner did not sanction the bid. Had that
been done, the Administration would have been in a very strong position to recover the shortfall from the
respondent.

(6) Lalchand

The highest bid of the respondents was provisionally accepted by the Excise Commissioner, Haryana, at an
excise auction for the year 1969-70, for licence to sell country liquor for Mandi Dabwali. The bid was later
confirmed but the bidders failed to deposit the required security. A statutory rule provided that if any person
whose bid had been accepted failed to make the necessary deposit of the security amount, his licence would
be resold by public auction and any deficiency in the licence-fee recovered from him. Accordingly, a notice
was served on the respondents by the Excise Commissioner requiring them to show cause as to why the
licence should not be re-auctioned and the deficiency in price recovered from them under the relevant
statutory rules. The Commissioner rejected their representation and directed the re-auction of the licence. A
new auction was held after wide publicity and the new bid fell short of the respondents' earlier bid by over 3
lac rupees. A notice was accordingly served on the respondents for the recovery of this amount.

The matter came before the Supreme Court by way of appeal in State of Haryana v. Lal Chand. 27 The
Court ruled that the provisions of Art. 299(1) were not attracted to the grant of the privilege to vend liquor
under the Excise Act.28 Once the bid offered by a person at an auction-sale was accepted by the competent
authority, a competent contract came into existence. In the instant case, the respondents were held liable to
make good the loss to the State. This was held to be a statutory liability arising under the Excise Act and the
rules of the State concerned.

(7) Jage Ram

While in another case,29 having a parallel fact-situation, the respondent was held not liable to make good the
loss as the re-auction was not held in accordance with the rules and due publicity had not been given to the
re-auction as a result of which adequate bids were not received, resulting in prejudice to the respondent.
Thus, the respondent was absolved from the liability to pay the amount demanded of him by the State.

In yet another fact-situation,30 instead of holding the re-auction, the licence was settled by private
negotiations. This was set aside. By a statutory rule, power had been conferred to resell a vend by public
auction or by private contract. Said the Court : "But this latter power has to be exercised with great care and
circumspection". "Public auction has to be the normal mode of selling public property. It is open to public
gaze and eschews many temptations to which private contracts are subject." Only when an auction is not
feasible or has failed to attract bidders after due publicity, that a private contract can be negotiated for
disposing of public property or rights in such property. In the instant case, the auction was abandoned after it
had commenced and there and then licence was granted by private negotiations. No reason was given for
adopting such a procedure and, therefore, the Court said : "The decision smacks of arbitrariness, is unfair
and unreasonable, and cannot be allowed to stand."
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2. DISPOSAL OF PUBLIC PROPERTY

The courts have refused to concede an absolute or open-end discretion to the Government and its agencies
to dispose of public property to whomsoever they like, at any price they like and in any manner they like. The
judicial thinking on the question of disposal of public property has been that the position of the Government is
that of a trustee and, as such, it should look to the interest of the state to whom the property belongs. The
endeavour of the courts in this area has been to ensure that public property is disposed of at the best
possible price which can be secured, without any discrimination or favourtism, and in a manner which is
open and above board. Accordingly, judicial policy which becomes manifest in court cases is to insist that, as
far as possible, public property ought to be disposed of openly and the effort of the concerned authority
ought to be to get the best price. Accordingly, sale can take place through--(i) a public auction, or (ii) inviting
public tenders after adequate publicity so that all interested persons have an equal opportunity of submitting
their bids or tenders, and not through private negotiations with a select person and without any favouritism or
discrimination. According to the Supreme Court, "Public auction with open participation and a reserved price,
guarantees public interest being fully observed."31

While disposing of government property, the Government must act in the interest of the State and not for
subserving any private purpose or interest of an individual. The Government cannot confer benefit on an
individual at the cost of the State. Such an action would be both unreasonable and contrary to the public
interest.

The courts insist that the state should try to dispose of its property at the best price so that the money could
be used to promote social purposes. This however is not an invariable rule and there may be circumstances
e.g. to achieve some constitutionally recognised social purposes as laid down in the directive principles32
when public property may be disposed of at less than market price or by private negotiations, but then the
reasons for departure from the general norm must be rational and non-discriminatory and the whole
transaction must be bona fide and above board.33

The general principle in this connection has been laid down by the Supreme Court thus :34

"... the Government cannot act in a manner which would benefit a private party at the cost of the State; such an action
would be both unreasonable and contrary to public interest. The Government, therefore, cannot for example give a
contract or sell or lease out its property for a consideration less than the highest that can be obtained for it, unless of
course there are other considerations which render it reasonable and in public interest to do so".

In a number of cases, property transactions between governmental agencies and private persons have been
quashed by the courts when these did not fulfil the conditions laid down by the courts for the purpose.

(1) Fertilizer Corporation

In Fertilizer Corporation Kamgar Union v. Union of India, 35 the Supreme Court expounded the principle that
a public authority does not have an open-end discretion to dispose of its property. The Fertilizer Corporation
sold some old machinery, the operation of which had become uneconomical. The Kamgar Union challenged
the sale under Art. 14 as being arbitrary and unfair.

The Supreme Court concluded after going into the facts leading to the impugned sale that "it is quite difficult
to hold that the decision to sell the plant or equipment of the factory was arbitrary, unreasonabe or mala
fide." Neither the decision to sell nor the sale proceedings were unreasonable, unjust or unfair." The
implication of this statement could be that, had the Court found the sale of the machinery to be arbitrary or
unreasonable, it would have set it aside. The Court expounded a beneficial principle thus :. . . .
"As far as possible, sale of public property, when the intention is to get the best price, ought to take place publicly." The
Court emphasized : "The vendors are not necessarily bound to accept the highest or any other offer, but the public at
least gets the satisfaction that the Government has put all its cards on the table."
 1353
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(2) Bhagubhai

In Bhagubhai v. Porbandar Municipality, 36 sale of land by the municipality to a co-operative society by

private sale was held to be invalid. The High Court emphasized that the municipality, an elected body, was a
trustee of all property vested in it; every citizen of the town had an interest in its funds and it was accountable
to the people. The municipality should lay down certain guidelines and frame rules for the disposal of its land.
These should be widely publicized and made known to the people. A number of other co-operative societies
had also requested for land but their claims were not considered. An elected councillor had locus standi to
challenge such a sale as it was his duty to see that the municipality acted in the best interests of the people
and according to law.37

(3) Parashram

In Parashram Thakur Dass v. Ram Chand, 38 the respondents made applications for allotment of
government land. These applications were rejected on the ground that the land was not available for
allotment. Later, the Government allotted the same land to the appellants reversing its earlier policy decision.
This allotment was quashed by the Supreme Court for the following two reasons : (i) looking at the Land
Code and the relevant rules, it was obvious that, as a general principle, leasehold rights in government land
must be disposed of by public auction. If in any particular case, the State Government considered that there
was good reason for granting the land without auction, the reasons must be recorded in writing. "The
existence of good reasons for departing from the general principle, and recording of reasons in writing are
essential prerequisites which must be satisfied before leasehold rights are granted without auction."

In the instant case, the Government did not record any reasons in writing. The Court was also not satisfied
that the Government had good reasons for departing from the normal practice. The grant of land to the
appellants must therefore be quashed. (ii) The State Government did not consider the claims of the
respondents whose applications had been rejected earlier. When the Government reversed its earlier policy
decision, it was incumbent on it to reconsider those applications or to notify that the land was available for
allotment and to invite fresh applications in that behalf. It was not open to the State Government to allot the
plots to the appellants in disregard of the claims of others who had also applied for allotment. The appellants
did not form any class distinct and separate from the respondents.

(4) Seven seas

Allotment of sites for starting schools by Haryana Urban Development Authority (HUDA) without following
any guidelines, criteria or uniform policy was held to be arbitrary and violative of Art. 14. The Court observed
:39
"The equality clause enshrined in Art. 14 of the Constitution requires that state action must be based on valid relevant
principles applicable alike to all similarly situate and it must not be guided by any extraneous or irrelevant
considerations as that would be denial of equality."

(5) Rashihari

The Orissa Government introduced a scheme of monopoly purchase of kendu leaves in the State. The
Government offered to sell the leaves to a select group of persons, viz., those who had purchased the leaves
in 1967 and had not defaulted in payment. This was challenged on the ground that the State Government
had not adopted the method of open competition for sale of the leaves but was selling the same at
concessional rates to select persons and, thus, the benefit which would otherwise have accured to the State
would go to a few select purchasers.

In a pre-Airport case,40 Rasbihari v. State of Orissa, 41 the Supreme Court quashed the government scheme
invoking Arts. 14 and 19 of the Constitution42 saying that it gave rise to a monoply in the trade in kendu
leaves to certain traders and singled out other traders for discriminatory treatment. The Court pointed out
that a private party had offered to purchase the entire stock of kendu leaves for two crores, but the State did
not explain as to why it did not accept the offer. According to the Court, "If the interests of the State alone
 1354
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were to be taken into consideration, the State stood to gain more than rupees one crore by accepting that
offer."

(6) Sriniketan

In 1984, the Government of India took a policy decision to allot land in New Delhi to cooperative group
housing societies registered in 1983-84, for construction of flats for their members on "first come first served
basis". Accordingly, the Registrar of Cooperative Societies issued a notice in the newspapers inviting
applications from co-operative societies for land allotment. Of the several applications received, the Registrar
selected 15 societies as eligible and submitted their names to the Central Government, of which 4 were
finally selected. Some applications were made by cooperative societies for land allotment directly to the
Government, of which 5 were selected. Land was thus allotted to nine societies in all. Allotment was
challenged by a society which was included in the Registrar's list but which did not get land from the
Government.

The High Court quashed the land allotment under Art. 14 on the grounds of "arbitrariness, favouritism and
discrimination." The court mentioned that the five societies selected by the Government consisted mostly of
Ministers, members of Parliament and officials of the Housing and Works Ministry dealing with the matter of
land allotment.

These societies then came in appeal to the Supreme Court but to no avail. The Supreme Court ruled in
Sriniketan43 that the land allotment was invalid for two main reasons :

(1)) The basic norm of allotment of land, viz., "first come first served" was not made known to all
the cooperative societies. The non-disclosure of the crucial criterion fixed by the Government
for land allotment caused jeopardy to a number of societies. As this criterion was not disclosed
to the public at large, the societies were not put on notice that the land would be allotted on the
above mentioned basis.
(2)) The Government did not follow a uniform policy in the application of the norm "first come first
served." The basic norm was not strictly adhered to; some exceptions were made with out any
reason. The Court also pointed out another flaw in the procedure followed, viz., two channels
for applications were used--one through the DDA and the other directly to concerned
department.

(7) Star Enterprises

A statutory corporation invited tenders for the sale of some plots of land for mercantile use. The petitioners
gave the highest offers in their tender and yet the tender was rejected. The petitioners challenged the action
of the corporation. In Star Enterprises v. C.I.D.C. of Maharashtra Ltd., 44 the Supreme Court did not quash
the impugned action as such because it found no mala fide s on the part of the corporation in rejecting the
offers. The Court thus assumed that the corporation was presumably looking for some better offers and this it
was entitled to do.

Nevertheless, the Court ruled that when such highest offers are rejected, reasons sufficient to indicate the
stand of the concerned authority should be given and communicated to the concerned parties "unless there
be any specific justification not to do so." Thus, the Court has laid down a very salient principle which can
control the authorities from exercising their discretion to accept or reject tenders arbitrarily.

(8) Bal Kalyani

A plot of land measuring about 3,700 sq. meters, located in Malabar Hills, a very posh area of Bombay, was
allotted by the Government of Maharashtra to a co-operative society consisting of members of the Indian
Administrative Service. The file of land allotment first came to the Revenue Secretary to the Government,
who was himself a member of the allottee society and he cleared the file without any loss of time. The
Revenue Minister also cleared the file which then went to the Chief Minister who also okayed the allotment
without any remarks. A charitable school run by a trust had also sought the land for charitable purposes but
the same was refused and the plot was allotteed to the IAS Officer's Coop. Society. The school trust
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challenged the allotment in the Bombay High Court through a writ petition arguing that the Government had
not publicly invited proposals from various sections of the society before disposing of the land. The State
Government's argument was that this was an isolated piece of land and that it had discretionary power which
allowed it to allocate the land as it saw fit.

A two Judge Bench of the High Court (SUKUMARAN and SARAF, JJ.)in a judgement delivered on July
12,92, quashed the allotment, threw out the Government's argument ruling that this was a clear case of
officials benefiting at the cost of the weaker sections of the society. As regards the role of the Chief Minister,
the Judges observed : "In the present case, what is disturbing is not a revision of opinion but the absence
thereof. The Chief Minister did not express any opinion whatsoever." The High Court ruled that the officials
behaved improperly. By signing the file, the Chief Minister also became a party to that improper behaviour.45

(9) Shyam Sunder

In Shyam Sunder Agarwal v. State of Rajasthan, 46 the Rajasthan High Court has ruled that the procedure
for allotment of industrial land should be such as to give equal opportunity to all eligible intending claimants.
Inviting offers by issuing a public notice or holding a public auction are accepted methods for disposal of
property in a fair manner giving equal opportunity to all interested persons. Allotment of land to one person
behind the back of others and without notifying the fact of availability of land amounts to discrimination and
denial of equal opportunity to others. In the instant case, allotment of Government land on lease for industrial
purposes without giving equal opportunity to all eligible claimants was held to be discriminatory and hence
invalid.

(10) Sobti

The New Delhi Municipality invited a few hoteliers to make offers for a hotel plot in New Delhi. This
procedure was challlenged on the ground of denial of equality to others under Art. 14. However, in S.S.
Sobti v. Union of India, 47 the Delhi High Court found nothing objectionable with the procedure of allotment.
The court did not agree with the petioner's contention that open tenders should have been invited for the
hotel plot. In such a huge project, only big hoteliers would be interested. A hotel can only be set up by a
person who is either skilled in the setting up of such a hotel, or can get technical assistance in this respect.
Also, a very substantial financial investment is required for the project. So, every one cannot set up the hotel.
The court observed that "the question whether open tenders are to be invited and the public generally
allowed to participate in a particular transaction, depends more largely on the nature of that transaction. The
field of choice should naturally be as large as possible. Generally, the subject-matter of the transaction
governs what procedure should be followed."

In the instant case involving financial commitment and an obligation to run that hotel, the field of choice was
obviously limited. As a comment on the case, it may be said that the decision of the High Court does not
seem to be satisfactory. True, the project of a five star hotel involves huge outlay, nevertheless, there could
be many persons capable of undertaking the project other than only the select few who were invited to
tender. Prior experience in running a hotel did not seem to be a necessary prerequisite for the tender for, in
the instant case, the plot was allotted to an automobile concern and not to an already established hotelier.
Only by an open tender could every one having an interest in the project have been given an opportunity to
bid. The underlying idea is to avoid administrative favouritism. The courts have been endeavoring to achieve
this objective as far as possible through their pronouncements since the Airport. For this purpose, open
tender ought to be the normal rule and any deviation therefrom an exception, the onus lying heavily on the
concerned authority to justify the deviation.

The High Court also expressed a doubt about the locus standi of the petitioner in the instant case. The court
pointed out that the validity of a transaction would be challenged by one who was discriminated against, or
who had been deprived of some valuable right. He must be an 'aggrieved person'. The court observed in this
connection.
"So, not everybody can set up such a hotel. It is not the petitioner's case that he has any connection with any group of
persons who wanted to set up the hotel. We are perturbed by the fact that if we entertain petitions of this type to
challenge transaction on whatever ground they may be based at the instance of the public at large, the court may be
 1356
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flooded with such petitions."48

Obviously, the court is taking the traditional view of locusstandi ignoring the recent developments in this area
of public interest litigation.49 The petitioner was an ex-member of the Delhi Development Authority, a social
worker, a rate payer of the concerned municipality and even an elderman thereof. It is true that the petitioner
had no personal interest in the project as such. The main question here was not that of enforcement of any
right of the petitioner but that of maladministration, that of wrongful exercise of power by a public authority
and, therefore, according to the recent judicial thinking, the petitioner could challenge administrative action in
public interest. Further, the ghost that if public interest litigation is allowed there would be a spate of such
cases before the courts has long been buried deep.

(11) Vibhute

As against the above judicial view, there is the pronouncement of the Bombay High Court50 allowing a public
interest litigation challenging disposal of government land to an individual for a commercial purpose by
private negotiation and at less than the market price. The court held that a citizen of India and resident of the
State is entitled to see that the State Government acts in a manner warranted by the Constitution and the
law. If the State violates the Constitution and the law, he has every right to draw the attention of the court
through public interest litigation. The High Court insisted that public property should be disposed of by public
auction so as to secure the best price. In the instant case, the High Court quashed the order saying that the
Government had acted quite contrary to its obligations to protect the public interest. The Court observed :51
"The Ministers were not dealing with their personal property, which they could have given away for song to whom they
like. They were dealing with the public property . . . This was not the private property of any of the Ministers which he
could have given away to anybody at the price lesser than the market price . . . Here we have the case where
favoritism and nepotism is writ large on record."

It was argued on behalf of the allottee that he had already spent a lot of money on the land since its
allotment. Rejecting the argument the court ruled that loss to the allottee could not legitimize the allotment
order passed by the Government in an arbitrary and discriminatory manner.52

(12) Sachidanand

The Government of West Bengal allotted a 4 acre plot of land in the heart of the Calcutta City by private
negotiations on a lease for 99 years to the Taj Group for construction of a hotel. On being challenged, the
Supreme Court approved the deal in Shri Sachidanand Pandey v. State of West Bengal 53

The Court held that the principal aim in allotting the land was not to secure the best revenue for the State,
but the socio-economic object of promoting tourism. The Court emphasized that public property is not to be
dealt with at the complete discretion of the executive. Public interest is the paramount consideration.
Ordinarily, public property ought to be disposed of by auction or tender, but it is not an invariable rule and
such a procedure can be departed from for reasons which are rational and not suggestive of discrimination.

The Court emphasized that appearance of public justice is as important as doing justice. Nothing should be
done which gives an appearance of bias, jobbery or nepotism. In the instant case, there was nothing to
suggest that the Government "did not act with probity in not inviting tenders".

In the same category falls the case noted below where the High Court upheld allotment of land by the State
Government at a concessional rate for establishing of International School of Business.54

(13) Haji Hassan

In Haji T.M. Hassan v. Kerala Financial Corpn., 55 the Supreme Court has laid down the following principles
which public authorities must follow in disposing of their property :

(a) The public property owned by the state or by any of its instrumentalities should be generally
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sold by public auction or by inviting tenders. Observance of this rule, not only fetches the
highest price for the property but also ensures fairness in the activities of the State and public
authorities.
(b) The state and public authorities should undoubtedly act fairly. Their action should be legitimate.
Their dealings should be above board. Their transaction should be without aversion or
affection. Nothing should be suggestive of discrimination. Nothing should be done by them
which gives an impression of bias, favoritism or nepotism. Ordinarily these factors would be
absent if the matter is brought to public auction or sale by tenders.
(c) But that is not the only rule. There may be situations necessitating departures from the rule, but
then, such instances must be justified by compulsions and not by compromise. It must be
justified by compelling reasons and not by just convenience.

In the instant case, the corporation invited tenders for the sale of a tea garden. The highest tender was
accepted but the tenderer (appellant) failed to pay the price offered. The corporation then negotiated with the
tenderer who had made the second best offer, persuaded him to better his offer, and sold the property to
him. This sale was challenged by the first tenderer, on the ground that private negotiation was unfair and
aribitrary and the corporation ought to have sold the property at a higher price. The Supreme Court found
nothing wrong with the sale. The Court ruled that the corporation had dealt with the property with fairness.
The Court pointed out that the appellant could not pay the money despite concessions having been offered
by the respondent. As he could not pay the money as the highest bidder, there was no reason why the
property could not be sold to the next highest bidder. The Corporation was able to negotiate even a higher
price than the bid of the second highest bidder.

(14) Mahesh

The U.P. Financial Corporation advanced a loan to the appellant industrialist. When the appellant defaulted
in payment of loan instalments, the corporation took over the appellant's concern and sought to dispose it of.
In Mahesh56Chandra, the Supreme Court laid down the guidelines for the corporation to follow while
disposing of the appellant's industrial undertaking. The Court emphasized : "The public functionaries should
be duty conscious rather than power charged." Their actions and decisions which touch the common man
have to be tested on the touchstone of fairness and justice.

In the instant case, the position of the corporation was equated to that of a trustee and its duty was to obtain
the best price for the property being sold. Sale of property should be either by a public auction or inviting
tenders. These guidelines are of a general nature and are to be followed by a public authority while disposing
of private property under its control.

(15) FCI

The Food Corporation invited tenders for sale of stocks of damaged rice. The Corporation reserved the right
to reject all tenders. The Corporation rejected all tenders including the highest one. The Corporation entered
into negotiations with all tenderers and sold the rice at the highest price thus offered.

The Supreme Court ruled in Food Corporation of India v. Kamdhenu Cattle Feed Industries, 57 that the
procedure adopted in the instant case was not violative of Art. 14. The highest tenderer has no right to claim
that his tender be accepted. The power to reject tenders can be exercised not arbitrarily but on cogent
grounds. Inadequacy of the price offered in the highest tender is a cogent ground for entering into
negotiations with the tenderers giving them an equal opportunity to raise their bids. It is in public interest to
get the highest price for the commodity as the money realised goes to public coffers.

The Court stated the basic principle thus : all state instrumentalities in all spheres including contractual have
to act conformable to Art. 14 of which non-arbitrariness is a significant facet. "There is no unfettered
discretion in public law. A public authority possesses powers only to use them for public good. This imposes
the duty to act fairly and to adopt a procedure which is 'fairplay in action'".

(16) NFL
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NFL, a public sector undertaking, floated an open press tender inviting quotations for sale of liquid oxygen
produced by it. A private party submitted a tender for the purchase of oxygen. Instead of accepting this
tender, NFL agreed to sell the gas to HCL, another public undertaking, at a price lower than tendered by the
applicant. He challenged the action of NFL as being discriminatory, arbitrary and violative of Art. 14. No
reservation had been made in the notice inviting tenders in favour of public sector undertakings. The High
Court of Punjab and Haryana upheld the transaction between the two public enterprises as being in public
interest. The petitioner would have purchased the gas from NFL and supplied it to HCL, which was a bulk
purchaser, at a higher price thus increasing cost of production of copper by HCL.

The Court ruled that the action of NFL did not suffer from any "taint of unreasonableness" nor was it actuated
by any mala fide motive. Both being public sector enterprises there was no loss to the Government even if
one enterprise were to sell the gas to another enterprise at a lower price than that offered by a private
party.58 For a piece of land reserved for petrol pump, the concerned authority rejected the highest bid of a
private party and allotted the same to a public sector undertaking. The High Court approved the action of the
authority saying "Private interest should not be permitted to defeat or prevail over public good."59

(17) Reddy

Under S. 74(1)(c) of the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act,
1966, government permission is necessary for sale of land of charitable institutions. The Government
permitted sale of land of an institution by private negotiation at a price of Rs. 62,500 per acre. The appellants
were willing to pay four times the price offered by the respondents and, accordingly, they challenged the
government order on the ground that it showed total non-application of mind60 to the essential pre-conditions
embodied in the proviso to S. 74(1)(c). Under S. 74(1)(c), it is made incumbent that the property be sold by
public auction. The proviso to the section authorises the Government to permit sale otherwise than by public
auction if--(1) it is in the interest of the institution, and (2) for reasons to be recorded in writing.

In Chenchu Rami Reddy v. Government of Andhra Pradesh, 61 the Supreme Court ruled that in according
sanction, the Government had failed to direct its mind to the requirements of law before passing the
impugned order. The Court quashed the government order on two grounds : (1) it suffered from the vice of
non-application of mind to essential matters; (2) there was no compliance with the relevant statutory
provision. Further, the Court directed that the land be sold by public auction after giving wide publicity to the
date, time and place of public auction to ensure that maximum number of intending purchasers attend the
auction in order to offer their bids. The Court cautioned that sale by private negotiations is not visible to the
public eye and may even give rise to public suspicion. Therefore, unless there are special reasons for sale
by private negotiations, sale of property should be by a public auction.

(18) Rao

When the Government announced a policy for leasing out of immovable property belonging to religious
institutions under Government management, the High Court insisted that the Endowment Commissioner
follows this policy and leases out such property accordingly and not otherwise. One of the guidelines of
government policy was that the lease be given for a maximum period of thirty years. Termination of the lease
after three years was held to be not valid.62

(19) Cancelling a Lease

Just as Government cannot arbitrarily allot a piece of land on lease to any one it likes, so also it cannot
cancel a lease arbitrarily and re-enter the leased land forcibly. The Government usually grants leases of land
and properties to private persons on certain terms and conditions for a term of years. The Government
reserves a right to cancel a lease if any one of the lease conditions is infrigned by the lessee. The
Government can do so only after giving a hearing to the lessee. If lease is terminated, there then arises the
question of re-entering the leased land. The Supreme Court has emphasized that the Government can
exercise its right to re-enter the land leased after terminating the lease only according to law and not
extra-judicially.
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The point has been clarified in State of Uttar Pradesh v. Maharaja Dharmander Prasad Singh. 63 In that
case the State as lessor cancelled the lease of a plot of land, mainly on the ground of violation and breach of
the terms and conditions of the lease. The lessee challenged the cancellation of the lease through a writ
petition in the High Court under Art. 226.64 The High Court quashed the order of cancellation holding it infirm
in law. On appeal by the State Government, the Supreme Court ruled that the question whether the
purported cancellation of the lease was valid or not was not a matter which could be agitated through a writ
petition because of the need to go into disputed questions of fact to determine the issue. Such a question
ought to be raised in a regular suit. But, at the same time, the Court also ruled that the right of the
Government to re-enter the leased property after terminating the lease can be exercised only according to
law and not extra-judicially. In the words of the Court :
"A lessor, with the best of title, has no right to resume possession extra-judically by use of force, from a lessee, even
after the expiry or earlier termination of the lease by forfeiture or otherwise. The use of the expression 're-entry' in the
lease deed does not authorise extra-judicial methods to resume possession. Under law, the possession of a lessee,
even after the expiry or its earlier termination is juridical possession and forcible dispossession is prohibited; a lessee
cannot be dispossessed otherwise than in due course of law. In the present case, the fact that the lessor is the State
does not place it in any higher or better position. On the contrary, it is under an additional inhibition stemming from the
requirement that all actions of Government and governmental authorities should have a 'legal pedigree'."

Therefore, there was no question of the Government thinking of appropriating to itself an extra-judicial right
of re-entry. Possession could be resumed by the Government only in a manner known to or recognised by
law. It could not resume possession otherwise than in accordance with law. Government was, accordingly,
prohibited from taking possession of the land otherwise than in due course of law.

Similarly, the Supreme Court has clarified in Express Newspapers v. Union of India 65 that the Government
can enforce its right of re-entry upon forfeiture of a lease only by recourse to due process of law. This
implies, in a case such as the present, the filing of suit by the lessor, i.e., Central Government, for the
enforcement of the right of re-entry due to forfeiture of lease because of the breach of the terms of the lease.

The Supreme Court has ruled in Assam Sillimanite Ltd v. Union of India, that before a mining lease can be
prematurely terminated, the lessee must be given a hearing by the concerned authority."

(a) Privatisation of Government Companies

In Balco,66 the Central Government disposed of 51% equity in Balco, a government undertaking,67 to a
private company by inviting tenders through global advertisement. The sale was challenged on various
grounds, but the Supreme Court rejected all the contentions and upheld the sale. The following main
propositions emerge from the court decision :

(1) Disinvestment by the government in a public enterprise is a matter of economic policy, which is
for the government to decide.
(2) The court does not interfere with economic policies unless there is a breach of law.
(3) It is not the function of the court of consider the question whether the policy of disinvestment is
desirable or not.
(4) Sale of an undertaking to the highest bidder after global advertisement inviting tenders at a
price fixed by the government could not be said to be vitiated in any way. The procedure
followed in the instant case was proper.
(5) The matter of fixation of the reserve price being a question of fact, the court does not interfere
unless the methodology adopted for the purpose is arbitrary.68

3. GOVERNMENT CONTRACTS AND WRITS

A large number of cases arise involving the question of issue of writs (mainly mandamus69) in matters arising
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out of contractual relationship between a private individual and a public authority. In considering this topic, a
line of demarcation needs to be drawn between the pre-contract stage and the post-contract stage.

(a) Pre-contract Stage

In this situation, at the threshold for entering into an agreement between the public authority and a private
person, the authority acts in the exercise of its administrative power. Here the question relates primarily to
the administrative power to enter into a contract and, therefore, at this stage writ petitions are held
maintainable which question the exercise of administrative power to enter into contract on one ground or
another.

The writ jurisdiction can always be invoked when there is discrimination at the threshold either in awarding a
contract, or bestowing a benefit, on the ground of breach of Art. 14. As has already been discussed above, at
the threshold, the focus of the courts is on avoiding any arbitrariness or discrimination on the part of the state
in the matter of entering into a contract.

A writ petition is always maintainable to challenge discrimination at the threshold when contract is being
awarded if it involves infringement of Art. 14 of the Constitution. While the Government has a right to choose
the person with whom it would enter into a contract, it cannot act arbitrarily in making the choice. If it does so,
its action can be quashed through a writ. Even in matters of contract, the state must deal with its citizens with
fairness and impartiality and it must give equal opportunity to all to offer their terms and the various offers
and tenders must get equal consideration at the hands of the Government. Similarly, discrimination by the
state in bestowing a benefit can be challenged through a writ petition. Thus, writ was issued in E.E. & Co.
Ltd. v. State of West Bengal, 70 where the Supreme Court held that the principles of natural justice are to be
observed when the Government seeks to blacklist a firm which has the effect of debarring the firm from
entering into contracts with the Government.

The corporation invited tenders for some construction work. A was the sole tenderer but his tender was
rejected. The corporation then invited fresh tenders. B wanted to tender but no forms were issued to him and
he was thus effectively prevented from tendering. Later, on the direction from the Government, the tender of
A was accepted. B challenged the action of the corporation through a writ petition. The Andhra Pradesh High
Court in Syed Moosa Quadri v. State of Andhra Pradesh, 71 quashed the action of the corporation in giving
the contract to A mainly on the following grounds :

(1) B had a right to tender for the work but that right was denied to him;
(2) the Government had no legal power to direct the corporation to accept A's tender;
(3) the corporation being an autonomous body, its action in accepting A's tender pursuant to
Government direction was wrong;
(4) A's tender having been rejected earlier was not a subsisting tender and so it could not be
accepted.

In the discussion in the previous page, innumerable cases have been cited when administrative action in
relation to entering into a contract has been challenged at the threshold through writ petitions. In such
petitions, the major question has been whether the contract has been made lawfully according to the
applicable norms of constitutional and administrative law to this area.72 In the area of exercise of power by
the government or its authorities in the matter of awarding contracts, the function of the courts is to prevent
arbitrariness and favouritism and to ensure that the power is exercised in public interest and not any
collateral purpose.73

In quite a few cases, award of contract has been quashed. A few examples of this judicial approach may be
cited here.

Award to a contract is quashed on such grounds as: mala fides, corruption, favouritism, discrimination,
arbitrariness, unfairness, illegality, irrationality, improper motives, not-application of mind, on the part of the
concerned authority.74
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Award of a contract is quashed if the concerned authority takes into account irrelevant considerations.75 The
Supreme Court has emphasized that even in commercial contracts where there is a public element it is
necessary that relevant considerations are taken into account and irrelevant considerations are kept out.
Award of a contract by the government or any of its authorities may be quashed by the court if the contract is
entered into for a collateral purpose, or if there is discrimination or unreasonableness.76

The Supreme Court has observed that if the court is satisfied that there have been "unreasonableness, mala
fide, collateral considerations" in awarding a contract then the court can quash the award of contract.77 In
Graphic Industries,78 the Supreme Court has held that even in contractual matters public authorities have to
act fairly.

In Asia Foundation,79 the Supreme Court has observed that judicial review of contractual transactions by
government bodies is permissible to prevent arbitrariness, favoritism or use of power for a collateral purpose,
or if the concerned authority takes into account irrelevant considerations.80 The court does not interfere
when there is no allegation of malice or ulterior motive and when the court has not found any mala fides or
favouritism in the grant of contract.

In New Horizons,81 the Supreme Court has emphasized, the decision to award contract can be challenged
on the Wednesbury82 principle of unreasonableness, i.e. unless the decision is so unreasonable that no
sensible person would have arrived at it, it should not be upset.83

In Raunaq,84 the court has said that when there is an allegation of mala fides, or that the contract is awarded
for a collateral purpose, and the court is satisfied, on the material placed before it that the allegation needs
further examination, the court would entertain the petition. Lately, the Supreme Court has adopted a cautious
attitude in the matter of interfering with the award of contracts. For example, in Raunaq, the Supreme Court
has stated that when a writ petition is filed challenging the award of a contract by the State or a public
authority, the court must be satisfied that there is some element of public interest involved in entertaining
such a petition. The reason is that when a court interferes, the execution of the project gets delayed resulting
in the escalation of the over-all cost of the project.

The Supreme Court has also adopted a very cautious attitude in the matter of granting a stay order when the
award of a contract act is challenged through a writ petition. In such a matter, the court has to satisfy itself
that the public interest in holding up the project for outweighs the public interest in carrying it out within a
reasonable time. The court must also take into account to cost involved in staying the project and whether
the public would benefit by incurring such cost. Thus, while granting a stay order stopping the project from
proceeding further, the order must provide for reimbursement of the costs to the public in case ultimately the
litigation fails. The public must be compensated both for the delay in implementation of the project and the
cost escalation resulting from such delay, "unless an adequate provision is made for this in the interim order,
the interim order may prove to be counter-productive."85

(b) Post-contractual Stage

After the award of the contract comes the stage of fulfilling the contractual obligations. A different situation
arises once the contract has been entered into. When a dispute arises at this stage between the contracting
parties, the question whether a writ petition is maintainable or not assumes a somewhat different and
complicated complexion. One cannot claim relief through a writ petition in each and every dispute arising
between the contracting parties under a contract entered into by them.

For long, since Achutan,86 the judicial view had been that "a writ petition is not an appropriate remedy for
impeaching contractual obligations, and the question of interpretation and implementation of a clause in a
contract cannot be the subject matter of a writ petition."87 But recently some change has come about in the
judicial attitude in this area and the courts are now willing to entertain writ petitions where, although the
relationship between the petitioner and the administration is based primarily in contract, some aspects or
elements of public law may also be involved in the controversy along with contractual relationship.

The precursor of the new trend is the Ram Sanehi case.88 In this case, the Supreme Court asserted that
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"merely because the source of the right which the respondent claims was initially a contract," it is not
necessary that to obtain relief against "any arbitrary and unlawful action on the part of a public authority," the
respondent must have always resort to a suit and not to a writ petition. Where the right to relief arises out of
an alleged breach of contract, a writ petition would be maintainable when the action challenged is of a public
authority invested with statutory power.

The case-law has now reached a point where it is not possible to assert that in no case involving contractual
relationship will a writ lie. There may be some features or aspects of Administrative Law involved in a
controversy which may lead the courts to give relief under Article 226 even though, originally, there was a
contract between the petitioner and the Administration. From this point of view, cases may be categorized as
follows :

(i) Cases where the relationship is purely contractual and the contract neither has any statutory
basis nor is regulated by any statute;
(ii) Cases where a statutory element enters the contract between the petitioner and the
Administration and there is a direct breach of a statutory provision, or where the contract has a
statutory 'flavour';
(iii) Where there is some element or facet of public law is involved, but there may be no violation
of any explicit statutory provision.

In many cases of contracts between government and private parties, the concerned authority seeks to
exercise statutory or administrative powers. Exercise of such powers cannot be viewed as exercise of
powers under the contract between the government and the private party concerned.

(c) Category (i)

In the first category, questions of pure breaches of contract arise. Here the contract entered into between the
state and the person aggrieved is non-statutory and the relationship is governed pure and simple by the
terms of a contract between the petitioner and the Administration and the petitioner complains of breach of a
term of the contract by the latter. The principle ordinarily followed in such situations is that contractual
obligations are matters of private law and that a writ does not lie against an authority to enforce a civil liability
arising purely out of a contract.

Barring certain exceptional situations, the general rule is that a writ is unavailable to enforce a contract qua
contract, that a writ petition cannot be filed to enforce a purely contractual obligation, the matter falls within
the area of private law under the Contract Act, and, therefore, the proper remedy for the purpose is a civil
suit for damages, injunctions, specific performance, or declarations in a civil court. The view is held generally
by the courts that a writ petition is not an appropriate remedy for imposing contractual obligations on the
government. The reason for such a view is that a contract normally creates a private right and imposes no
public duty recognisable by public law.89 Thus, a contractual obligation pure and simple, without any
statutory complexion, is not enforceable through a writ. For example, in Kulchhinder,90 the Supreme Court
rejected a writ petition moved to enforce a simple contract between the staff and a public authority regarding
staff promotions, saying that even if such a contract be regarded as binding, a writ petition was not a proper
remedy for enforcing it. The Court stated :91

"What is immediately relevant is not whether the respondent is State or Public authority but whether what is enforced is
a statutory duty or sovereign obligation or public function of a public authority. Private law may involve a State, a
statutory body or a public body in contractual or tortious actions. But they cannot be siphoned off into the writ
jurisdiction."

The Supreme Court has stated this proposition in Radhakrishnan92. The Court maintained that after the
government had entered into a contract with a private party, the relations inter se between the contracting
parties were not governed by any constitutional provision but by the provisions of the Contract Act which
should determine the rights and obligations of the concerned parties. No question arose regarding the
violation of Art. 14, or of any other constitutional provision, when the government was acting within the
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contractual field.

In the instant case, the State Government leased out some forest land for 15 years to collect and exploit sal
seeds on payment of royalty. The State government cancelled the lease for breach of certain conditions
thereof. The appellants challenged to order of cancellation of the lease through a writ petition arguing
violation of Art. 14. Negativing the contention, the Supreme Court observed that Art. 14 would have applied
had the State practised some discrimination against the petitioner at the threshold, or at the time of entry into
the contract so as to exclude him or some unreasonable or unsustainable ground hit by Art. 14. After the
State entered into the contract, the relations are no longer governed by Art. 14, but by the legally valid
contract which determines the mutual rights and obligations of the parties inter se.

The Supreme Court has pointed out in State of Punjab v. Bilbir Singh, 93 that the High Court had no
jurisdiction to enforce the liabilities arising out of mutually agreed conditions of contract, in a writ petition
proceeding under Art. 226 of the Constitution.

In matters of contract pure and simple, the courts do not distinguish between a breach committed by a
private person, or brought about by a government authority. A plausible reason to refuse mandamus to
remedy a breach of contract committed by an authority was given by the Patna High Court in B.K. Sinha v.
State of Bihar as follows :94
"It is neither possible in law nor expedient that every breach of contract committed by the government's authorities
should be remedied by issue of a writ of mandamus, If it were so, then in every case of breach of contract entered with
various departments of the government concerned a petitioner would be entitled to an order from this court which will
have the force of a decree or specific performance of contract which otherwise such a petitioner would not be entitled
from a civil court."

A contractor carried on some construction work for the State. A dispute arose between the contractor and the
State whether the State had made him an excess payment. The Supreme Court ruled that a dispute of this
kind is of a civil nature to be decided by a civil court and is not susceptible to writ jurisdiction under Art.
226.95

(1) Bishwanath Tea

The respondents filed a writ petition seeking to recover from the appellant a sum of money paid as royalty for
cutting and felling trees by them. The Supreme Court ruled in Divisional Forest Officer v. Bishwanath Tea
Co. Ltd. 96 that there was no breach of any statutory provision or fundamental right under Art. 19(1)(g), and
the respondents were seeking to enforce a contractual obligation through writ jurisdiction which could not be
done. A petition for refund of royalty alleged to have been unauthorisedly recovered from them by the
Administration could hardly be entertained in exercise of the High Court's writ jurisdiction. The relief claimed
by the respondent was referable to nothing else but the terms of the lease. To enforce such a contractual
obligation, the party could sue for damages or specific performance. The Supreme Court observed :97
"In substance, this was a suit for refund of a royalty alleged to be unauthorisedly recovered and that could hardly be
entertained in exercise of the writ jurisdiction of the High Court."

(2) Har Shankar

In Har Shankar,1 an auction for issue of liquor licenses was held. After some time, the petitioner wanted to
wriggle out of the contract as he was not able to fulfil his part of the contract. Accordingly he filed a writ
petition for cancelling the auction alleging several illegalities therein.

The Supreme Court held that a concluded contract had come into existence between the parties. The parties
entered into the contract with open eyes and must accept the burdens of the contract along with the benefits.
The writ jurisdiction "is not intended to facilitate avoidance of obligations voluntarily incurred."

Said the Court : "The powers of the Financial Commissioner to grant liquor licences by auction and to collect
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licence fees through the medium of auctions cannot by writ petitions be questioned by those who had their
venture succeeded, would have relied upon those very powers to found a legal claim."2 Thus, the Court was
seeking to apply a kind of estoppel against the petitioner which appears to be a questionable judicial strategy
in the circumstances of the case. Ultimately, the Court did consider the merits of the case but found the
contentions of the petitioner to be baseless.

(3) FCI

The Food Corporation of India entered into a contract with the respondent for transporting and storing
foodgrains on behalf of the Corporation. The agreement had a clause empowering either of the parties to
cancel the contract. The FCI gave a notice to the respondent to cancel the contract under this clause. The
Supreme Court ruled in FCI v. Jagannath Dutta, 3 that no writ could be issued in the instant case as the
High Court could not go into the question of contractual obligation in its writ jurisdiction.

Several other examples of rejection of writ petitions on the ground of contractual rights not being enforceable
through writ petitions have been mentioned earlier.4

It may not be out of place of mention here, however, that although in some of the cases mentioned above,
the term private law has been used, the law relating to Government contracts is becoming in many ways
distinct from the law pertaining to private contracts. As the following categories show, Government contracts
cannot be viewed purely as being similar to private contracts in all respects. In the French Jurisprudence, a
distinct branch of law, contract administratif, has arisen to take care of distinctive features of government
contracts.5 As the previous discussion on government contracts shows, a similar development is taking place
in India as well.6

The Supreme Court has ruled in Bareilly Development Authority v. Ajai Pal Singh 7 that where the contract
entered into between the state and the persons aggrieved is non-statutory and purely contractual and the
rights of the parties are governed only by the terms of the contract, no writ can be issued under Art. 226 of
the Constitution so as to compel the authorities to remedy a breach of contract pure and simple.

In Union of India v. Graphic Industries Co., 8 the respondent filed a writ petition against the Railway
Administration seeking payment for goods supplied to the Railways. The writ petition was rejected on the
ground that the matter being purely in the realm of contract, the remedy by way of mandamus was not
available to the petitioner dehors the terms of agreement which included an arbitration clause.

The petitioner's argument was that the Railways being a government instrumentality was under a duty to act
fairly even in matters pertaining to contractual rights and in the instant case the Railways had not acted fairly
in denying payments for the goods supplied by the petitioner to the Railways several months back. After
examining the facts, the Court was not satisfied that the Railways had acted unfairly in withholding payment
to the writ petitioner. With this finding, the Court rejected the writ petition.9

In Mangat Ram v. Delhi Development Authority 10 the Delhi High Court has ruled that when an
administrative authority cancels the lease of land, the answer to the question whether the order of
cancellation can be challenged through a writ petition or not depends on whether the lease has been
cancelled under a clause in the lease deed, or under an administrative/statutory power. In the instant case,
the Court refused to entertain a writ petition challenging cancellation of a lease because the same had been
done under the lease deed and not under any administrative power.

(4) Rukmanibai

If a Government contract has an arbitration clause for settlement of disputes arising under it, then the High
Court may refuse to entertain a writ petition for setting disputes under the contract. The court will insist that
the dispute be settled through arbitration under the Arbitration Act. A writ petition would not lie for the
purpose of facilitating avoidance of obligation incurred voluntarily.

In the following case,11 a dispute arose as regards the amount of royalty payable by the appellant who held a
quarry lease for excavating lime. Cl 15 of the agreement of lease said that if any dispute arose under the
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agreement the same "shall be decided by the lessor whose decision shall be final." The appellant raised
objection under Cl 15 and an official of the Government after hearing the appellant decided the amount of
royalty payable by the appellant.

Not being satisfied with this decision the appellant filed a writ petition in the High Court questioning the
legality and validity of the demand. When the High Court rejected the writ petition, the appellant appealed to
the Supreme Court which dismissed the appeal. The Supreme Court ruled that Cl. 15 constituted an
arbitration clause and the government's award as arbitrator could not be challenged through a writ petition.12

Therefore, the position is that where the dispute lies within the contractual field pure and simple, e.g. the
question of interpretation and implementation of a clause in a contract, or whether a term of the contract is
infringed or the state has made excess payment to the contractor or not, the relations between the
contracting parties inter se, are governed by the contract. Such disputes are of a civil nature and are to be
adjudicated in a civil court and are not fit to be decided in a writ petition.13

(d) Category (ii)

The second category, mentioned above, does not present much of a difficulty. When some statutory element
enters into a contract a writ may be issuable. A writ will lie where there is a direct violation of a statutory
provision, e.g. if the petitioner's statutory right is infringed, or if an authority refuses to perform a statutory
obligation. A writ petition is maintainable to challenge action by a public administrator when he is exercising
statutory power, or where the contract has a statutory flavour. Thus, a writ is issued in case of dismissal of
an employee by a statutory body for breach of its own regulations made by it under statutory powers.14 In
this connection, an extended principle has been laid down by a High Court as follows :15

"If the term or condition which creates the right or obligation is contained in the statute and has legal force as a
provision of the statute then the violation of the term or condition is a violation of the statute, and that is so even if the
term or condition is incorporated in a contract between the parties, whether that is required by the statute in such
contract or is left to the will of the parties. But if the term or condition has legal force only when it is incorporated in a
contract between the parties then violation of that term or condition amounts to a mere breach of contract and that is so
even if that term or condition is required by the statute to be incorporated in a contract."16

(1) Vidya Ram

In Vidya Ram Mishra v. Managing Committee, Sri Jai Narain College, 17 the managing committee of a
college affillated to the Lucknow University dismissed a lecturer. He filed a writ petition challenging the
validity of the dismissal order on the ground that he was denied natural justice. The relevant statute of the
University governing his case was 151 framed under the University Act, which provided that the teachers of
an affiliated college would be appointed on a written contract which must provide, inter alia, the conditions
mentioned therein in addition to any other conditions not inconsistent with the Act and the statutes which an
affiliate college wanted to include in its own form of agreement. Statute 151 did not provide for any particular
procedure for dismissal or removal of a teacher for being incorporated in the contract. The court refused to
give relief to the petitioner emphasizing two aspects of the matter. First, the terms and conditions of service
mentioned in statute 151 became terms and conditions of service only by virtue of their incorporation in the
contract and had proprio vigore no force of law so that the relationship between the college and the teacher
was purely contractual. Secondly, the teacher was dismissed from service in accordance with a clause in the
agreement and this clause had no statutory force as statute 151 did not lay down any procedure for removal
of a teacher to be incorporated in the contract.

On the other hand, in Prabhakar Ramkrishna Jodh v. A.L. Pande, 18 a writ was issued to a college affiliated
to a university on the ground that the conditions of service of the teachers in such colleges were regulated by
the 'college code' which had the force of law and conferred legal rights on the teachers. Thus, once the
college teachers are held to have statutory rights, a writ could be issued to enforce the same, and the fact
that the teacher had entered into a contract with the college would be immaterial.
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The crux of the problem thus is : what is the source of the right in question? Does it flow from contract or
statute? In the latter case (Jodh), having a contract is immaterial and writ would be available. In the former
case (Mishra), it is immaterial that the contractual terms are borrowed from the statute if the court feels that
the statutory clauses in question are not binding by themselves without being incorporated in a contract.
There is thus a very thin line of differentiation in the two situations, between statutory or contractual nature of
the relevant conditions to be enforced.

(2) DDA

Allotment of a flat was cancelled by the Delhi Development Authority not only in exercise of contractual
obligations but also of statutory powers. A writ petition was held maintainable to challenge D.DA's action as it
did not fall in the realm of pure contract but was also statutory in nature. The order of cancellation was
quashed in Surendra Nath v. DDA 19 as it was not preceded by any show cause notice to the petitioner. The
Court observed in this connection :20
"It is true that in case the rights flow only from the contract then obviously the principle of rule of natural justice not
being followed while cancelling the contract is not applicable, but where the rights flow from the statutory obligations or
from public functions the respondents were not legally entitled to cancel the allotment of the flat in the name of the
petitioner arbitrarily without resorting to principle of natural justice of giving a show cause notice to the petitioner prior to
cancelling the allotment."

The Court also observed on the question of maintainability of a writ petition in such matters :
"It is, no doubt, a settled law that if a particular legal right flows purely from contractual transaction the writ jurisdiction
of the High Court under Art 226 cannot be invoked. It is only for enforcement of legal rights flowing from any statutory
provisions or from any performance of public duties and functions that the writ jurisdiction can be invoked by the
aggrieved person."21

(3) Ram Sanehi

As seen earlier, in Ram Sanehi,22 the respondent had purchased through an auction the right to cut trees for
a year. The Divisional Forest Officer (D.F.O.) passed an order depriving the respondent of some timber cut
by him. He challenged the D.F.O.'s order through a writ petition on the ground that he had not been given a
hearing by the D.F.O. before passing the order. It was argued on behalf of the D.F.O. that since the dispute
arose out of the terms of the contract, the remedy of the respondent lay by way of a civil action and not
through a writ petition. The Supreme Court rejected the contention and quashed the D.F.O.'s order stating
that by his order, the D.F.O., a public authority, had deprived the respondent of a valuable right. According to
SHAH, J. : "We are unable to hold that merely because the source of the right which the respondent claims
was initially a contract, for obtaining relief against any arbitrary and unlawful action on the part of a public
authority he must resort to a suit and not a petition by way of a writ."

After referring to Guruswamy,23 SHAH, J., observed that "there can be no doubt that the petition was
maintainable, even if the right to relief arose out of an alleged breach of contract where the action challenged
was of a public authority invested with statutory power."

Thus, the proposition is established that where the action of a public authority invested with the statutory
powers is challenged, a writ petition would be maintainable even if the right to relief arises out of an illegal
breach of contract. Ram Sanehi has a very significant place in the development of law relating to government
contracts. In 1975, this author commenting on Ram Sanehi had observed about its futuristic impact on
Administrative Law : "It may be appropriate to state here that the Ram Sanehi case indicates that the future
judicial trend would increasingly be to move away from a purely contractual approach in public law
matters'.24

Clarifying the Ram Sanehi ruling, the M.P. High Court stated in S.G. Trading Co. v. State, 25 that a writ could
be issued where rights and liabilities although originating in a contract, were not purely contractual, but were
"partly contractual and partly statutory." When the Government, a party to an agreement, is acting under
statutory powers, the agreement becomes, at least partly, statutory and a writ petition is maintainable in
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respect of any matter arising out of the alleged breach of such an agreement.

In S.G. Trading, certain charges were levied under a contract but the contract was entered into by virtue of
the statutory provisions contained in the Electricity Act. The charges though mentioned in the contract were
really levied by virtue of the power given by the said Act. The charges could be challenged through a writ
petition. In the instant case, the petitioners had agreed to pay to the suppliers, the Union of India, every
month certain minimum charges. But a dispute arose when there was a power cut and the petitioners were
not able to consume electricity to the extent desired. The court ruled that the agreement was inequitable in
as much as it required the petitioners to pay the minimum charges even when power was not supplied as
stipulated in the contract.26

(4) P.F. Coperative

The Indian Fisheries Act, 1897, and the rules made thereunder, prohibit fishing without lease or licence in
waters under the control of the Fisheries Department. In P.F. Co-op. Society v. Collector, Thanjavur, 27 the
collector granted a lease of fishery rights to the petitioner but later cancelled it.

The petitioner questioned the validity of the order through a writ petition. The question was whether the
petition was maintainable. Answering in the affirmative, the High Court argued that the collector had acted
under the Fisheries Act in granting the lease. In other words, his authority to grant the lease was statutory
and so the writ petition was maintainable and it could not be dismissed on the simple ground that the
petitioner's rights were traceable to the contract entered into by him with the collector. The High Court stated
that "when the authority is controlled by the provisions of the Act and rules made thereunder, even the terms
and conditions in the lease would be traceable to the statutory power." It could not therefore be assumed that
the petitioner's fishing rights were merely contractual.

Here it may even be argued that cancellation of the lease without hearing the petitioner amounted to violation
of the statutory provision in question as such a requirement could be read by implication into the provision.28

(5) Assam Sillimanite

In Assam Sillimanite Ltd. v. Union of India, 29 the petitioners secured mining leases from the Government of
Assam to extract silimanite. The Government cancelled the leases prematurely. Quashing the cancellation
order, the Supreme Court insisted that the Government ought to have given an opportunity of hearing to the
lessee before cancelling the leases.

(6) SKG Sugar

To the same effect is the ruling of the Patna High Court in S.K.G. Sugar Ltd. v. State of Bihar .30 The
petitioner supplied liquor to the Government on the basis of an undertaking given by the excise
commissioner as to the rate payable to him. When the petitioner sought to claim the rate according to the
undertaking, the payment was not made to him. He then brought a writ petition for issue of mandamus to the
State and the commissioner of excise for payment to him according to the undertaking.

The Government objected to the writ petition on two grounds : (1) his claim was merely contractual and so
the writ petition under Art. 226 was not maintainable. The proper remedy was a suit in a civil court. (2) There
was no concluded contract between the petitioner and the State and, as such, the petitioner had no right to
claim the rate according to the undertaking.

The court however ruled that it had power in appropriate cases to compel performance of the obligations
imposed on authorities by executive orders when any person acted to his detriment on solemn promises
made by the concerned authorities. In supplying the liquor, the petitioners acted on the undertaking given by
the commissioner. While granting the privilege to the petitioner to supply liquor, the commissioner exercised
a statutory power under the Excise Act, 1915. It could not, therefore, be equated with the contracts entered
into by the Government with a citizen in the exercise of its executive powers. Contracts of a statutory nature
are distinguishable from contracts executed in exercise of executive powers. So, the petitioner's claim was
not merely contractual.
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Here it may also be noted that under the statute the excise commissioner was under the general control of
the Board of Revenue which had already directed him to make payment to the petitioner, but the
commissioner disregarded the direction of the board. The court accordingly issued mandamus directing the
State to implement the Board's order.

In S.K.G. Sugar Ltd. v. State, 31 rates for supply of liquor to the Government were fixed through a formal
order after they were agreed upon between the suppliers and the commissioner of excise. After sometime,
the rates were reduced unilaterally through another order. This was contested by the suppliers through a writ
petition. The State argued that the petition was not maintainable as it related to matters covered by a
contract. The court rejected the argument and issued the writ quashing the new order. The court ruled that
the order fixing the price was statutory in character as it was passed under the Excise Act. "The fact that a
bilateral negotiation precedes a statutory order does not affect the nature of the order." The petitioner was
not given any opportunity of being heard while reducing the price. The principle of promissory estoppel was
also applicable in the fact-situation.32

(7) Bal Krishan

In Bal Krishan v. State, 33 the Government cancelled a mining lease granted to the petitioner. A clause in
the contract provided that the Government could cancel the contract in public interest. The procedure to
grant mining contracts was laid down in the Mines and Minerals (Regulation and Development) Act, 1957,
and the Himachal Pradesh Minor Minerals (Concession) Revised Rules, 1971. The High Court dismissed the
writ petition filed to challenge the validity of the order cancelling the lease. It argued that the Act and the rules
in question did not make any specific provision empowering the Government to terminate a contract in the
public interest. Such a provision was made only in the agreement. This meant that the petitioner's complaint
arose from the alleged breach of contract and so no writ could be issued.

The Court took the view that a writ can be claimed if a petitioner's statutory right is infringed, or if an authority
refuses to perform a statutory obligation. In the words of the court :34
"If the term or condition which creates the right or obligation is contained in the statute and has legal force as a
provision of the statute then the violation of the term or condition is a violation of the statute, and that is so even if the
term or condition is incorporated in a contract between the parties, whether that is required by the statute in such
contract or is left to the will of the parties. But if the term or condition has legal force only when it is incorporated in a
contract between the partiesthen violation of that term or condition amounts to a mere breach of contract and that is so
even if that term or condition is required by the statute to be incorporated in a contract." (Emphasis added).

The one point deserving notice in this case is that the form of contract in question entered into between the
petitioner and the Government was prescribed in the rules made under the Act. The rules, therefore,
envisaged entering into a specific contract in the prescribed form. It was argued that the form of the
agreement having been prescribed in the rules, the provisions of agreement formed part of the rules. The
court however rejected the plea, taking the view that mere reference to the form of contract in the rules did
not clothe it with statutory operation. The agreement became operative only when the parties subscribed
their signatures to the agreement. The rule in question did not bring the contract into operation.

By way of comment on this case, it may be said that this ruling is debatable. It appears to be a misnomer to
call it a contract, for the parties were not free to negotiate the terms thereof. Its form having been prescribed
by the rules, the parties had merely to sign on the dotted lines. It could therefore legitimately be regarded as
a statutory agreement and not a contract pure and simple in the conventional sense. The contract was made
by the Government in pursuance of statutory power and according to the P.F. Society view, cancellation of
such a contract ought not to be immune from the writ jurisdiction.

The judicial view adopted in the case creates a very serious snag, viz., the methodology of imposing certain
obligations on the lessees not directly through the rules but through a statutorily prescribed contract,
presents the administrative authorities with an escape route--to enjoy power without court review.35

(8) Lotus Hotels

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Reference has already been made earlier to Gujarat State Financial Corpn. v. Lotus Hotel Pvt. Ltd. 36 It was
argued that since the relationship between the corporation and the petitioner in the instant case was
contractual, a writ petition would not lie to enforce the same. Rejecting the contention, the Gujarat High Court
pointed out that where the dispute lies within the contractual field pure and simple, a petition under article
226 is not maintainable, but if any statute imposing certain duties and obligations on the state intervenes,
then a writ petition under article 226 would be maintainable.

In the instant case, however, the matter did not lie purely in the contractual sphere. To a large extent, it was
statutory; it was contractual merely in form and detail. The transaction in question undoubtedly had 'statutory
flavour.' By agreeing to advance the loan, the corporation was performing one of its statutory duties. When
the corporation appointed a director, it was acting purely in the statutory field. To recover the loan, the
corporation could invoke its rights under the statute. In these circumstances, a writ petition could lie to
enforce its obligations. An authority could not be allowed to act arbitrarily, unfairly and unilaterally. Thus,
when an authority purporting to act under a contract is in reality exercising its administrative power in an
arbitrary and unreasonable manner writ petition will lie.

On appeal, the Supreme Court upheld the High Court.37 The Supreme Court pointed out that the agreement
to advance the loan was entered into by the corporation in performance of the statutory duty cast on it by the
statute under which it was created and set up. The court went on to say : "It is too late in the day to contend
that the instrumentality of the state which would be 'other authority' under Article 12 of the Constitution can
commit breach of a solemn undertaking on which other side has acted and then contend that the party
suffering by the breach of contract may sue for damage but cannot compel specific performance of the
contract."38 The court thus concluded that a petition under Art. 226 "would certainly lie to direct performance
of a statutory duty by 'authority' as envisaged by Article 226."39

(9) Mangat Ram

The Delhi High Court has rendered a debatable ruling in Mangat Ram v. Delhi Development Authority. 40
Lease of a piece of land was executed in the name of the President of India in favour of the petitioner under
the Government Grants Act, 1895. The lease was cancelled after some time for breach of its terms, and the
petitioner challenged the cancellation through a writ petition. The court rejected the petition holding that the
matter was purely contractual and a writ petition could not be moved to enforce contractual rights.

A good arguable point in the fact-situation is that in granting the lease, the President (or, to be exact, the
Delhi Development Authority) was acting under statutory powers and, therefore, the lease in the instant case
was not purely contractual but had a statutory flavour. There is another strong socio-legal argument in favour
of this view. All land in Delhi is frozen and land can only be had from the D.D.A. on a lease-hold. The
lease-deed is one-sided; if one wants land, he has to sign on the dotted line and he has no bargaining
position vis-a-vis the D.D.A. The D.D.A. enjoys immense powers under the lease deed. In such a situation, to
characterise the lease as a contract pure and simple is to hold that the D.D.A. is subject to no control and
that the lessees have no effective legal remedy against improper exercise of its powers by the D.D.A. What
the Supreme Court has said in the Gujarat case41 is quite pertinent to this fact-situation as well.

(10) Rout

On the other hand, the Orissa High Court ruled in K.C. Rout v. State 42 that when the state leased out a plot
of land to the petitioner, the existence of a valid lease in his favour gave him a statutory right under s. 108 of
the Transfer of Property Act. The lessor would be under a statutory obligation to put the lessee in possession
of the leasehold property and if the Government lessor failed to do so, the lessee could invoke the writ
jurisdiction for enforcement of his statutory right. Similar is the view expressed by the Delhi High Court in an
earlier case.43 A perpetual lease of a piece of land was executed between the Central Government and
Edward Keventer for establishing a dairy farm. When the lease was sought to be revoked, the petitioner
contended that the writ petition would be maintainable since the Government was proceeding to revoke the
lease arbitrarily and in a mala fide manner. Quashing the Government order, the court said : "The only way
to stop the state from acting in an arbitrary and capricious manner is to seek recourse to Art. 226." The lease
in question was held to be a Government grant and the order being challenged was that of the estate officer.
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(11) Shital

In Shital Prasad v. M. Saidullah, 44 the sale and supply of sugar was regulated under the Essential
Commodities Act, 1954 and the U.P. Sugar Control Order, 1966. The order did not lay down as to how an
authorised dealer was to be selected for selling sugar. The petitioner was appointed a dealer in levy sugar
under an agreement between him and the district magistrate. The agreement provided that the district
magistrate could cancel the agreement without assigning any reason. The magistrate cancelled the
petitioner's licence and forfeited the security deposit as there were complaints against him. He challenged
the order on the ground of denial of natural justice to him as he was not given any opportunity to defend
himself.

The Allahabad High Court dismissed the petition treating the matter merely as that of cancellation of a
contract for which neither could a writ be issued nor natural justice be claimed. The court claimed support for
its view from Achutan and Lekhraj.

The decision of the court is very hard to justify. Achutan was a simple case of contract, whereas Lekhraj
refers to an ad hoc appointment by a Government official or a manager of an evacuee business. In the
instant case, the concerned authority was acting under statutory provisions. The fact-situation here was akin
more to the cancellation of a trading licence necessitating observance of natural justice both under the
statutory provisions and Art. 19(1)(g) of the Constitution, and as there was violation of this, an appropriate
writ was the proper relief.

In some cases, a licence may have a contractual basis, e.g. a licence to sell liquor, may be given as a result
of auction, which is a contract. Yet, if such a licence is to be cancelled, the licensee must have a right of
hearing. The Supreme Court itself has accepted this position.45 A licence is issued in exercise of
administrative power and it cannot be treated as a matter of pure and simple contract between the two
parties.46

The Delhi High Court has cited a situation as follows where writ jurisdiction can be invoked : Where a term of
contract "imposed" by the state or an authority on the citizen is contrary to law and, thus, non est, and an
action of the state, insisting on the observance of such a term of contract would, in substance, be an act in
the exercise of its executive or statutory power rather than as a contracting party simpliciter. In modern
Automobiles, the same High Court said :
"It must be remembered that these are standard form contracts and being Government contracts are mostly one-sided.
The citizen as a contracting party has no liberty to settle the terms of the contract as in the normal commercial
contracts. If he is to be out of business, he has no option but to agree to the terms of the contract already settled by the
Government."

A term in a contract, contrary to the express provisions of a statute, is illegal and void and the contract is to
be read as if no such illegal condition exists therein.

A writ is a proper remedy when there is an undue exercise of administrative power in the context of
contractual relationship. This was emphasized by the Supreme Court in Ram Sanehi. Several cases
illustrating this proposition have been cited earlier in this chapter. A few more may be cited here.

(12) Marwar Tent

In Marwar Tent Factory v. Union of India, 47 the petitioner entered into a contract with the Government to
supply tents. The Government claimed that the tents were not of the specified quality and, accordingly,
proceeded to itself assess damages against the petitioner without giving him a hearing. The petitioner moved
a writ petition in the High Court claiming that the assessment of damages by the Government was wholly
illegal and without jurisdiction and amounted to deprivation of his property without the authority of law.

The Government argued that Art. 226 could not be invoked in the matter of determination of rights and
obligations of the parties arising out of contract.
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The court rejected Government's objections as regards the maintainability of the writ petition because there
was no provision in the contract conferring a right on the Government to itself adjudicate its claim for
damages, nor there was any statutory provision authorising the Government itself to assess damages. The
Government was, thus, seeking to become a judge in its own cause which was against the basic principles of
natural justice. Nor was the petitioner given any hearing by the Government before seeking to assess
damages and this again was violative of natural justice.

The court stated that when a question of jurisdiction of the Government to deprive a person of his property
without law arises, a writ-petition could be filed. No doubt, to decide such a question, the court has to look at
the contract in question but that is only to determine whether the action sought to be taken by the
Government is within the jurisdiction of the Government or is arbitrary or illegal.48

(e) Category (iii)

In course of time, the principle has come to be established that a writ petition would lie when a dispute even
though arising under a contract has some public law element underlying, or superimposed over the contract
between an authority and a private person. A writ petition would not lie if a dispute is pure and simple a
private law dispute law without any insignia of public law element, but contractual obligations may fall under
judicial review to the extent some public law element is involved therein.

The dichotomy between public and private law rights and remedies depends upon the factual matrix. The
distinction between public law remedy and private law remedy cannot be demarcated with precision. Each
case has to be examined on its facts and circumstances to find out the nature of the activity, scope and
nature of the controversy. Accordingly, the adjudication arising out of a contract would, therefore, depend
upon facts and circumstances in a given case. In the public law area, each authority is required to act in a
fair, just and equitable manner.

The principle has been laid down by the Supreme Court in several cases. For examples, in Escorts,49 the
Court has observed :

"If the action of the state is related to contractual obligation or obligations arising out of contract, the court may not
ordinarily examine unless the action has some public law character attached to it. The court will examine actions of
state if they pertain to the public law domain and refrain from examining them if they pertain to the private law field..."

It is thus established that when the matter falls within the realm of public law rather than of private law, the
High Court can take cognisance of the matter under Art. 226.50 Government and its agencies must act fairly
even in contractual matters.

According to the Government circular, the local co-operative society had the first right to the settlement of a
jalkar within its area. Failing which, an outside co-operative society could get the jalkar after seeking
departmental approval. In the instant case, as no co-operative society was qualified to make the bid, it was
knocked down in favour of the petitioner who deposited half the bid amount. The procedure followed by the
concerned authority was according to the Government circular. The Government then directed that the
fishery be settled on an outside co-operative society.

On being challenged, the Government order was quashed. The court ruled that although the successful
bidder got no right until his bid was approved, in the instant case, the petitioner was entitled to maintain the
petition as the auction was valid and he was greatly prejudiced by the order in question. The court ordered
that the fishery be re-auctioned so that the society could also bid.51

The petitioner offered the highest bid at an auction for forest coupes and deposited the necessary security.
The confirmation of the bid took a long time so the petitioner withdrew his bid. Thereafter, the Government
sought to confirm his bid and the petitioner moved the writ petition seeking cancellation of the Government
order and refund of his security deposit. In Durga Saw Mill v. State, 52 the court held the petition
maintainable. A bid is nothing more than offer and until the bid is confirmed, the bidder can always withdraw
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his bid. There was the following general condition of sale : "No bidder shall be eligible to rescind the contract
between the date of bidding and the date of approval..." The court held this condition as ineffective as it was
not statutory, and there being no consideration, it was not even contractual. An obligation not to retract the
bid must be supported either by consideration or a statutory provision. There being no contract, the writ
petition was not to enforce any contractual obligation. The petitioner was held entitled to the refund of the
security deposit as there was no offer in existence and the order of confirmation was without any basis.

(1) Desai

In M.S. Desai & Co. v. Hindustan Petroleum Corpn. Ltd., 53 a writ petition by a petitioner challenging
cancellation of his dealership of petroleum products by the respondent corporation was held maintainable.
The Corporation is an authority under Art. 12 of the Constitution.54 The Corporation argued that the action
was taken against the petitioner under the dealership agreement and hence the dispute was merely of a
contractual nature and that a writ would not lie in the contractual area. But the High Court did not agree with
this view.

The Government of India had issued certain guidelines laying down procedure for dealing with dealers of
petroleum products. These instructions were binding on the respondent Corporation. The Court ruled in the
instant case that the instructions issued by the Central Government were "totally dehors" the dealership
contract between the parties. These instructions did not flow from any contract but were issued
independently by the Government in exercise of its executive power. The procedure was engrafted on the
relationship between the parties not by any contract but by independent executive instructions issued by the
Central Government.55 Breach of the instructions could be challenged through a writ petition under Art. 226.
This did not raise purely a question of breach of contract. "This type of grievance cannot be styled as falling
wholly within the domain of contractual rights and obligations of the respective parties under the dealership
agreement."56

(2) Applicability of Art. 14

As already stated above, at the threshold, the Courts do invoke Art. 14 of the Constitution to ensure that the
Government does not act in an arbitrary or discriminatory manner in the matter of entering into a contract57
or conferring benefits. But, even in the post-contract stage, it is obligatory on the state to deal with its citizens
with fairness and impartiality. However when arguments based on Art. 14 are raised in the post-contract
stage, the courts are extremely reluctant to countenance them. To begin with, the Supreme Court took the
position that while award of a contract was subject to judicial review, a breach of a contractual obligation
arising out of a contract already executed would not be subject to judicial review and the remedy in such a
case would be by way of a suit for damages.

The State Government leased out some forest land for 15 years to collect and exploit salseeds on payment
of royalty. Under the lease terms, the State Government raised the rates of royalty and then cancelled the
lease for breach of certain conditions thereof. The appellants challenged the order of cancellation of the
lease through writ proceedings arguing breach of Art. 14. Petitioner's main argument was that the State,
even in the contractual field, could not escape the obligations imposed upon it by Art. 14.

The Supreme Court rejected the petition in Radhakrishna Agarwal v. State of Bihar, 58 saying that Art. 14
would have applied had the State or its officers practised some discrimination against the petitioner at the
very threshold, or, at the time of entry into the contract so as to exclude him from consideration when
compared with others on any unreasonable or unsustainable ground hit by Art. 14. At that stage, the State
acts purely in its executive capacity and so is subject to Art. 14. After the state has entered into a contract,
the relations are no longer governed by Art. 14, but by the legally valid contract which determines the rights
and obligations of the parties inter se. The Court observed on this point :
No question arises of violation of Art. 14 or of any other constitutional provision when the State or its agents, purporting
to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and
are bound by the terms of contract only unless some statute steps in and confers some special statutory power or
obligation on the State in the contractual field which is apart from contract.
 1373
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(3) Premji

Allottees of flats constructed by the Delhi Development Authority (D.D.A.) at various places in Delhi
comprised in the Middle Income Group Scheme (M.I.G.) questioned the surcharge collected as part of the
sale price of each flat as unauthorised and discriminatory in character through an Art. 32 writ petition. The
D.D.A. which has been set up by the Delhi Development Act, 1957, constructed the flats and allotted them to
the applicants. Their complaints was that it charged them a surcharge over the cost of the flats which was
unlawful as it had not charged similar surcharge from other allottees in other M.I.G. schemes and this
violated Art. 14 as much as persons in the same class (M.I.G.) were unequally treated. Also, since 1978, the
surcharge had been abolished and so there was no valid or understandable justification for charging
surcharge from some during 1976-1977. No surcharge had been charged prior to 1976 and after January,
1977, except for the three schemes in question and that from 1978 it had been abolished. The surcharge had
no nexus to the object of the authority, viz., providing housing accommodation at a reasonable price and on
no profit, no loss basis.

The Supreme Court ruled in Premji Bhai Parmar v. D.D.A. 59 that the petition filed under Art. 14 was a
camouflage to conceal the real purpose motivating the petitioners, viz., to get back a part of the purchase
price of the flats paid by them under the contract. The Court stated that a writ petition under Art. 32 was not a
proper remedy nor was the Court a forum for re-opening concluded contracts with a view to getting back a
part of the purchase price and the benefit taken. The petitioners offered to purchase the flats at the price at
which the authority offered to sell them. There was no mis-statement or incorrect statement or any fraudulent
concealment of information by the authority. How, the seller worked out his price was a matter of his own
choice unless it was subject to statutory control. This was a contractual matter and a petition under Art. 32
was not suited to claim relief by way of refund. In determining the price of flats constructed by it, the D.D.A.
acted "purely in its executive capacity." In price fixing, the executive enjoys a wide discretion subject to
statutory control, if any. Only experts could work out the mechanics of price determination.60

Ordinary contractual relations were no longer governed by constitutional provisions, but by legally valid
contract which would determine the rights and obligations of the parties inter se. Those who entered into a
contract with open eyes must accept the obligations thereof along with its benefits. Article 14 would not apply
to such a situation. The Court stated : "But after the State or its agents have entered into the field of ordinary
contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract
which determines rights and obligations of the parties inter se. No question arises of violation of Art. 14 or of
any other constitutional provision..." Article 14 forbids discrimination amongst persons of the same class. For
allotment of flats scheme-wise, allottees of flats in the same scheme, not different schemes in the same
income bracket, should be treated as a class. Unless in each class there is unequal treatment or
unreasonable or arbitrary treatment, no complaint could arise under Art. 14. All allottees of the flats in the
M.I.G. scheme at any place and executed at any time could not form one single class for the purpose of the
pricing policy. Project-wise price fixation could not be dubbed as arbitrary or discriminatory in comparison
with other projects at different places. "No profit no loss basis" policy had no statutory basis. Authority's
housing scheme as a whole was running into a heavy deficit. The Court held that computation of surcharge
was not arbitrary and irrational. Levy of the surcharge for M.I.G. was justified so as to reduce the cost of flats
for lower income group (L.I.C.) and Janata schemes. A little more from those who can afford to benefit the
weaker sections who need succour, is not discriminatory under Art. 14.

But then the judicial attitude underwent a change and it came to be held judicially that even arbitrary and
unreasonable decisions of the authorities while acting in pursuance of a contract would be amenable to the
writ jurisdiction.61

The New Delhi Municipal Corporation constructed a shopping complex. All shops in the complex were
arranged in five zones on the basis of classification of various trades. It was a condition that the allottee of a
shop would carry on the specific trade assigned to the concerned zone. Some of these shopkeepers
changed their business but the new business could not be carried on in the concerned zone. The committee
served show-cause notices on these persons with a view to cancel their licences. These persons filed writ
petitions to challenge the show cause notices. The Delhi High Court ruled in Sanjiv Prakash v. New Delhi
Municipal Committee 62 that the committee could no longer insist on the petitioners to adhere to the zoning
 1374
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system as it had itself permitted some persons to set up shops in defiance of the same. "It is now settled law
that the Government or the State cannot act arbitrarily while entering into contracts." Having given up the
zoning scheme while making allotments to some shopkeepers, it would be arbitrary as well as irrational to
insist that other allottees in the same market should continue to adhere to the original zoning system. "An
arbitrary decision is per se violative of Article 14."

When a contract is entered into between a person and an authority, but the terms and conditions thereof are
determined by the authority in exercise of its statutory powers, the contract is to be regarded as a statutory
contract. Such a contract is amendable to the writ jurisdiction of the High Court.63

The Supreme Court judgment in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly 64
also supports the proposition that the remedy by way of a writ petition under Art. 226 is available to declare a
term of a statutory contract as not enforceable when the petitioner had no option but to accept to execute the
contract on the terms and conditions unilaterally prescribed by the other side (i.e. the concerned authority)
for entering into a contract.

In this case, an unconscionable term in contract of service was declared to be void under Art. 14. The case
illustrates the principle that it is possible for the Court to strike down as invalid an unconscionable term in a
contract entered into between an authority and the petitioner if that term is viodative of Art. 14. Where
freedom of contract is absent and the weaker party has no realistic choice as to the terms of the contract he
is entering into, then an unconscionable term may be quashed.

(4) Marfatia

The Bombay Port Trust Authority cancelled the lease of one of the tenants of its properties. The tenant
challenged the cancellation of the tenancy. In Dwarkadas Marfatia,65 the Supreme Court observed :66
"Being a public body even in respect of its dealing with its tenants, it must act in public interest and an infraction of that
duty is amenable to examination either in civil suit or in writ jurisdiction."

The field of letting and eviction of tenants is normally governed by the Rent Act. But the Port Authority was
granted exemption from the Rent Act. On this basis, the Supreme Court took the position that the act of
cancellation of tenancy cannot be regarded as "a matter of contract pure and simple." "These corporations
must act in accordance with certain constitutional conscience and whether they have so acted, must be
discernible from the conduct of such corporations."67 Thus, if the authority acts in an arbitrary manner, " Art.
14 springs in and judicial review strikes such an action down." The Court has observed :
"Every action of the executive authority must be subject to rule of law and must be informed by reason. So, whatever
be the activity of the public authority, it should meet the test of Art. 14."68

Further the Court observed :

"...[E]very activity of a public authority especially in the background of the assumption on which such authority enjoys
immunity from the rigours of the Rent Act, must be informed by reason and guided by the public interest...If a
governmental policy or action even in contractual matters fails to satisfy the test of reasonableness, it would be
unconstitutional."

The Court pointed out that the contractual privileges of the Port Authority were made immune from the
protection of the Rent Act because of its public position. "Hence, its actions are amenable to judicial review
only to the extent that the State must act validity for a discernible reason not whimsically for any ulterior
purpose."

(5) Asha Goel

In Asha Goel v. Life Insurance Corp. of India, 69 the Bombay High Court has ruled that a life insurance
policy with the L.I.C. is partly contractual and partly statutory, as some incidents of some policy have been
 1375
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determined by the Life Insurance Act, 1938. Thus, the court has observed : "The liability of L.I.C. under a
policy of life insurance is a statutory liability and hence a writ can lie under Art. 226 of the Constitution."70

In the instant case, L.I.C. had refused to pay the policy amount after the death of the petitioner's husband.
On review of the facts on record, the court concluded that the action of the L.I.C. "in repudiating the claim of
the petitioner was irrational,

capricious and arbitrary which violates the provisions of Art. 14 of the Constitution."71 Accordingly, the court
directed L.I.C. to pay the policy amount to the petitioner and other benefits accruing from the policy as well
as 15% interest from the date of the death of the petitioner's husband.

(6) Shrilekha

What the Supreme Court had said in the above mentioned Marfatia case, it applied in Shrilekha Vidyarthi v.
State of Uttar Pradesh .72 The State Government of Uttar Pradesh terminated at one stroke the appointment
of all government counsels in the districts through an omnibus general order published in the form of a
notification in the State Gazette. The validity of the order was challenged vis-a-vis Art. 14 through a writ
petition and the Supreme Court quashed the order. Provisions for the appointment of government counsels
are made in the State in the Legal Remembrance Manual. The Court ruled : " All Government counsels are
paid remuneration out of the public exchequer and there is a clear public element attaching to the 'office' or
'post'." Referring to a clause in the Manual, the Government argued that the appointment of a district
Government counsel (who was appointed for a term of three years) was only professional engagement
terminable at will on either side without assigning any cause. But the Supreme Court reading all the relevant
provisions, and not only this clause in isolation, observed :
"It does not mean that the appointment is at the sweet-will of the Government which can be terminated at any time,
even without the existence of any cogent reason during the subsistence of the term. The construction suggested on
behalf of the State of U.P. of this provision, if accepted, would amount to conceding arbitrary power of termination to
the Government, which by itself is sufficient to reject the contention thereby save it from any attack to its validity..."

Even on the premise that after the initial appointment, the matter is purely contractual, it could not be argued,
said the Court, that Art. 14 would cease to apply. The Court made the following crucial observation in this
regard :
"Applicability of Art. 14 to all executive actions of the State being settled and for the same reason its applicability at the
threshold to the making of a contract in exercise of the executive power being beyond dispute, can it be said that the
State can thereafter cast off its personality and exercise unbridled power unfettered by the requirement of Art. 14 in the
sphere of contractual matters and claim to be governed therein only by private law principles applicable to private
individuals whose rights flow only from the terms of the contract without any thing more? We have no hesitation in
saying that the personality of the State, requiring regulation of its conduct in all spheres by requirements of Art. 14,
does not undergo such a radical change after making the contract merely because some contractual rights accrue to
the other party in addition. It is not as if the requirement of Art. 14 and contractual obligations are alien concepts, which
cannot co-exist."73

At another place, the Court observed that "In our opinion, it would be alien to the constitutional scheme to
accept the argument of exclusion of Art. 14 in contractual matters," and that "an additional contractual
obligation cannot divest the claimant of the guarantee under Art. 14 of non-arbitrariness at the hands of the
state in any of its actions." The Court also observed :
"We, therefore, find it difficult and unrealistic to exclude the State actions in contractual matters, after the contract has
been made, from the purview of judicial review to test its validity on the anvil of Art. 14."

The Court observed finally :

"In our view, bringing the State activity in contractual matters also within the purview of judicial review is inevitable and
is a logical corollary to the stage already reached in the decisions of the courts so far."74
 1376
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The Court clarified that ordinarily the scope of judicial review in respect of disputes falling within the domain
of contractual obligations may be restrictive and, in doubtful cases the parties may be relegated to
adjudication of their rights by resort to remedies providing for adjudication of purely contractual disputes. But,
to the extent, challenge is made on the ground of violation of Art. 14 by alleging that the impugned act is
arbitrary, unfair or unreasonable, the fact that the dispute also falls within the domain of contractual
obligations, the obligation of the state assumes a public character and falls within the scope of the writ
jurisdiction.

The Court has observed in this connection :

"However, to the extent, challenge is made on the ground of violation of Art. 14 by alleging that the impugned act is
arbitrary, unfair or unreasonable, the fact that the dispute also falls within the domain of contractual obligations would
not relieve the state of its obligation to comply with the basic requirements of Art. 14. To this extent, the obligation is of
a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An
additional contractual obligation cannot divest the claimant of the guarantee under Art. 14 of non-arbitrariness at the
hands of the state in any of its actions.75

Accordingly, the Government order was quashed as it was found to be ex facie arbitrary.

The above crucial judicial verdict makes it clear that Art. 14 does not stop at the threshold, i.e., at the point of
making of the contract, but applies even thereafter to state action in execution of the contract. The State can
never act in an arbitrary manner. This extends the scope of judicial review of contractual matters and hence
the scope of the writ jurisdiction of the High Courts and the Supreme Court in contractual matters.

A distinction is to be drawn between a contract being terminated-- (i) on the ground of violation of a condition
of contract; and (ii) arbitrarily and dehors the contract. In the second situation, a writ petition is maintainable
as, in such a case, principles of natural justice are to be applied otherwise it will amount to violation of Art.
14.76

The proposition is now well established that since Art. 14 strikes at arbitrariness in government action and
ensures fairness and equality of treatment, therefore, even in the contractual field, if the government takes
unreasonable and arbitrary decisions, the matter would fall under the writ jurisdiction. There is the duty on
the state to act fairly in respect of a contract as well.

1 K.L. Trading Co. Pvt. Ltd. v. State of Meghalaya AIR 1996 Gau 17 [LNIND 1995 GAU 6] [LNIND 1995 GAU 6] [LNIND 1995
GAU 6]. Shashi Bhushan Singh v. Oil Selection Board Bihar, AIR 1996 Pat 45.

2 K.L. Trading Co. Pvt. Ltd. v. State of Meghalaya AIR 1996 Gau 17 [LNIND 1995 GAU 6] [LNIND 1995 GAU 6] [LNIND 1995
GAU 6]. See, Maheshwar Prasad Singh v. Hindustan Petroleum Corpn. Ltd. AIR 1996 Pat 82; see, JAIN, Treatise I, Chapter
XIX .

3 AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]: 1979 (2) LLJ 217 : (1979) 3 SCC 489
[LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275].

4 Mahabir Auto Stores v. Indian Oil Corporation AIR 1990 SC 1031 [LNIND 1990 SC 135] [LNIND 1990 SC 135] [LNIND 1990
SC 135], at 1037 : (1990) 69 Comp Cas 746 : (1990) 3 SCC 752 [LNIND 1990 SC 135] [LNIND 1990 SC 135] [LNIND 1990 SC
135]. For facts of the case, see, infra.:

5 Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250]
[LNIND 1980 SC 250]: (1980) 4 SCC 1.

6 TVL Sundaram Granites v. Imperial Granites Ltd. AIR 1999 SC 3835 [LNIND 1999 SC 1394] [LNIND 1999 SC 1394] [LNIND
1999 SC 1394]: (1999) 8 SCC 150.

7 See, Guruswamy v. State of Mysore AIR 1954 SC 592 [LNIND 1954 SC 104] [LNIND 1954 SC 104] [LNIND 1954 SC 104]:
1955 (1) SCR 305; State of Assam v. Keshub Prasad Singh AIR 1953 SC 309 [LNIND 1953 SC 47] [LNIND 1953 SC 47]
[LNIND 1953 SC 47]: 1953 SCR 865; State of Bihar v. Ram Bharosa AIR 1956 SC 640; Ashok Kumar v. Union Territory,
Chandigarh, AIR 1995, SC 461 : (1995) 1 SCC 631.

8 Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250]
 1377
Page 324

[LNIND 1980 SC 250]: (1980) 4 SCC 1.

9 AIR 1986 SC 1003 : (1986) 2 SCC 354.

10 Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250]
[LNIND 1980 SC 250]: (1980) 4 SCC 1.

11 For explanation of these concepts, see, JAIN, Treatise, I, Chapter XIX, Cases, III, Chapter XVI, 2068-2236.

12 M.P. Oil Extraction v. State of M.P. (1997) 7 SCC 592 [LNIND 1997 SC 1755] [LNIND 1997 SC 1755] [LNIND 1997 SC
1755] : AIR 1998 SCC 145. Also see, 5 M&T Consultants, Secunderabad v. S.Y. Nawab (2003) 8 SCC 100.

13 State of Madhya v. Nandlal AIR 1987 SC 251 [LNIND 1986 SC 400] [LNIND 1986 SC 400] [LNIND 1986 SC 400]: (1986) 4
SCC 566: 1987 Tax LR 1830.

14 AIR 1995 Bom 235 [LNIND 1994 BOM 474] [LNIND 1994 BOM 474] [LNIND 1994 BOM 474]

15 AIR 1987 SC 1109 [LNIND 1987 SC 159] [LNIND 1987 SC 159] [LNIND 1987 SC 159]: (1987) 2 SCC 295.

16 Also see, G.D. Zalani v. Union of India AIR 1995 SC 1178 [LNIND 1995 SC 1427] [LNIND 1995 SC 1427] [LNIND 1995 SC
1427]: (1995) 84 Comp Cas 40: 1995 Supp (2) SCC 512.

17 AIR 1981 SC 1001 [LNIND 1981 SC 82] [LNIND 1981 SC 82] [LNIND 1981 SC 82]: (1981) 2 SCC 270.

18 AIR 1982 Ker 337.

19 AIR 1981 SC 1722 : 1981 Supp SCC 85.

20 State of Uttar Pradesh v. Shiv Charan Sharma AIR 1981 SC 1722 : 1981 Supp SCC 85.

21 AIR 1987 Del 23.

22 Rama Ranjan Prasad Singh v. Union of India, AIR 1995 Pat 90.

23 Shiv Lochan v. State AIR 1982 Pat 119.

24 AIR 1982 All 490.

25 AIR 1982 SC 1234 : (1982) 2 SCC 365.

26 On Auction, see: Haridwar Singh v. Begum Sumbrui AIR 1972 SC 1242 [LNIND 1972 SC 132] [LNIND 1972 SC 132]
[LNIND 1972 SC 132]: (1973) 3 SCC 889; State of Orissa v. Harinarayan Jaiswal AIR 1972 SC 1816 [LNIND 1972 SC 156]
[LNIND 1972 SC 156] [LNIND 1972 SC 156]: (1972) 2 SCC 36 : 1972 Tax LR 2298: 38 Cut LT 481; Krishna v. State of Uttar
Pradesh AIR 1979 All 43; Lakhmi Chand v. Collector, Agra AIR 1982 All 460; Nilgiri Contractors Society v. State of Orissa AIR
1975 Ori 33 [LNIND 1974 ORI 55] [LNIND 1974 ORI 55] [LNIND 1974 ORI 55]; Abdul Yaqub v. State of Orissa AIR 1975 Ori
202 [LNIND 1975 ORI 15] [LNIND 1975 ORI 15] [LNIND 1975 ORI 15]; Sushil Chandra v. State of Uttar Pradesh AIR 1971 All
290.

27 AIR 1996 SC 1356 [LNIND 1996 SC 421] [LNIND 1996 SC 421] [LNIND 1996 SC 421]at 1362 : (1986) 2 SCC 405.

28 On Wednesbury Principle, see, JAIN, Treatise, I, Chapter XIX; JAIN, Cases, III, Chapter XVI,

29 AIR 1982 Gau 37.

30 AIR 1983 Guj 235 [LNIND 1983 GUJ 126] [LNIND 1983 GUJ 126] [LNIND 1983 GUJ 126].

31 Ishwar Dayal v. State AIR 1983,330 Del.

32 D.S. Sharma v. Delhi Administration, AIR 1983 Del 434 [LNIND 1982 DEL 200] [LNIND 1982 DEL 200] [LNIND 1982 DEL
200].

33 Vikas Enterprises v. State AIR 1983 All 236.

34 Shriram Refrigeration Industries Ltd. v. State Bank of India AIR 1983 Pat 203.

35 Ajoomal Lilaram v. Union of India, AIR 1983 SC 278 [LNIND 1982 SC 195] [LNIND 1982 SC 195] [LNIND 1982 SC 195]:
(1983) 1 SCC 119.

36 Misra Agencies v. State AIR 1988 Ori 257.

37 Sham Lal v. Union of India AIR 1995 P&H 147.

38 Om Prakash Tewari v. District Magistrate, AIR 1996 All 115 [LNIND 1995 ALL 585] [LNIND 1995 ALL 585] [LNIND 1995
 1378
Page 325

ALL 585].

39 Braj Kishore Singh & Co. v. State of Bihar AIR 1996 Pat 32.

40 Jagtar Singh v. HPCL, AIR 1995 P&H 265.

41 Allied Oil Industries v. AIR 1983 MP 158. Also see, infra, under Writs and Contracts.

42 AIR 1982 Mad 386 [LNIND 1982 MAD 59] [LNIND 1982 MAD 59] [LNIND 1982 MAD 59].

43 On 'extraneous considerations,' see, JAIN, Treatise, I, Ch. XIX; JAIN, Cases, III, 2154-2196. On ' Mandamus,' see, infra,
under 'Judicial Control'.

44 Jawahar & Co., Katni v. State AIR 1981 MP 214.

45 State of Uttar Pradesh v. Shiv Charan Sharma AIR 1981 SC 1722 : 1981 Supp SCC 85.

46 AIR 1985 SC 1147 [LNIND 1985 SC 188] [LNIND 1985 SC 188] [LNIND 1985 SC 188]: (1985) 3 SCC 267; JAIN, Cases, IV,
Chapter XXII.

47 Reference was made to the following CASES in support of this proposition: Trilochan Mishra v. State of Orissa AIR 1971 SC
733 [LNIND 1971 SC 64] [LNIND 1971 SC 64] [LNIND 1971 SC 64]: (1971) 3 SCC 153; State of Uttar Pradesh v. Vijay
Bahadur Singh AIR 1982 SC 1234 : (1982) 2 SCC 365; State of Orissa v. Harinarayan Jaiswal AIR 1972 SC 1816 [LNIND
1972 SC 156] [LNIND 1972 SC 156] [LNIND 1972 SC 156]: (1972) 2 SCC 36.

48 Ramana Dayaram Shetty v. International Airport Authority AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275]
[LNIND 1979 SC 275]: 1979 (2) LLJ 217: (1979) 3 SCC 489 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275].

49 Kashturi Lal Lakshmi Reddy v. State of Jammu & Kashmir AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250]
[LNIND 1980 SC 250]: (1980) 4 SCC 1.

50 Guruswamy v. State of Mysore, AIR 1954 SC 592 [LNIND 1954 SC 104] [LNIND 1954 SC 104] [LNIND 1954 SC 104]:
1955 (1) SCR 305.

51 Chaitanya Kumar v. State of Karnataka, AIR 1986 SC 825 [LNIND 1986 SC 115] [LNIND 1986 SC 115] [LNIND 1986 SC
115], 828 : (1986) 2 SCC 594 [LNIND 1986 SC 115] [LNIND 1986 SC 115] [LNIND 1986 SC 115].

52 Chaitanya Kumar v. State of Karnataka AIR 1986 SC 825 [LNIND 1986 SC 115] [LNIND 1986 SC 115] [LNIND 1986 SC
115]: (1986) 2 Cur CC 327: (1986) 2 SCC 594 [LNIND 1986 SC 115] [LNIND 1986 SC 115] [LNIND 1986 SC 115].

53 Supra,AIR 1979 SC 1628 [LNIND 1979 SC 275] [LNIND 1979 SC 275] [LNIND 1979 SC 275]: 1979 (2) LLJ 217Chapter
XXVI

54 The Sunday, 27th Sept. - 3 Oct., 92.

55 N.J. Reddy v. Progressive Democratic Students Union (1994) 6 SCC 506 : JT 1994 (6) SC 170; JAIN, Treatise, I, Chapter
XIX; JAIN, Cases, III, Chapter XVI, Sec. F, 2120.

56 State of Madhya Pradesh v. Nandlal, AIR 1987 SC 251 [LNIND 1986 SC 400] [LNIND 1986 SC 400] [LNIND 1986 SC 400],
255 : (1986) 4 SCC 566 [LNIND 1986 SC 400] [LNIND 1986 SC 400] [LNIND 1986 SC 400].

57 Kashturi Lal Lakshmi Reddy v. State of Jammu & Kashmir AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250]
[LNIND 1980 SC 250]: (1980) 4 SCC 1.

58 On 'mala fides' see, JAIN, Treatise, I, Chapter XIX.

59 State of Madhya Pradesh v. Nandlal AIR 1987 SC 251 [LNIND 1986 SC 400] [LNIND 1986 SC 400] [LNIND 1986 SC 400]:
(1986) 4 SCC 566: 1987 Tax LR 1830.

60 Ramana Dayaram Shelly v. International Airport Authority of Union of India AIR 1979 SC 1628 [LNIND 1979 SC 275]
[LNIND 1979 SC 275] [LNIND 1979 SC 275]: 1979 (2) LLJ 217: (1979) 3 SCC 489 [LNIND 1979 SC 275] [LNIND 1979 SC 275]
[LNIND 1979 SC 275].

61 Kashturi Lal Lakshmi Reddy v. State of Jammu & Kashmir AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250]
[LNIND 1980 SC 250]: (1980) 4 SCC 1.

62 On ' mala fides' see, JAIN, Treatise, I, Chapter XIX, Chapter XIX; JAIN, Cases, III, 2068-2135.

63 AIR 1981 SC 1636 [LNIND 1981 SC 158] [LNIND 1981 SC 158] [LNIND 1981 SC 158]: (1981) 2 SCC 410.

64 Vishnudas Hundumal v. State of Madhya Pradesh AIR 1981 SC 1636 [LNIND 1981 SC 158] [LNIND 1981 SC 158] [LNIND
1981 SC 158]: (1981) 3 SCC 501: 1981 (1) Scale 589 [LNIND 1981 SC 158] [LNIND 1981 SC 158] [LNIND 1981 SC 158]. To
 1379
Page 326

the same effect is Allied Transport Co. v. State of Madhya Pradesh AIR 1981 SC 1639 : 1981 (1) Scale 838.

65 Daya Shankar Singh v. Conservator of Forest, AIR 1984 All 188.

66 See, infra, under Judicial Control.

67 JAIN, Treatise, I, Chapter VIII.

68 AIR 1984 SC 363 [LNIND 1983 SC 421] [LNIND 1983 SC 421] [LNIND 1983 SC 421]: 1984 (1) LLJ 67: (1983) 4 SCC 582
[LNIND 1983 SC 421] [LNIND 1983 SC 421] [LNIND 1983 SC 421].

69 Ramana Dayaram Shetty v. International Airport Authority of Union of India AIR 1979 SC 1628 [LNIND 1979 SC 275]
[LNIND 1979 SC 275] [LNIND 1979 SC 275]: (1979) 2 LLJ 217: (1979) 3 SCC 489 [LNIND 1979 SC 275] [LNIND 1979 SC 275]
[LNIND 1979 SC 275].

70 S.S.B.M.P. Sahakari Samiti v. Darbhanga RTA, AIR 1989 Pat 72: .

71 Fasih Chaudhary v. Director General AIR 1989 SC 157 [LNIND 1988 SC 490] [LNIND 1988 SC 490] [LNIND 1988 SC 490],
159 : (1989) 1 SCC 69.

72 AIR 1989 Gau 30 [LNIND 1987 GAU 65] [LNIND 1987 GAU 65] [LNIND 1987 GAU 65].

73 Mahindra & Mahindra v. State AIR 1986 AP 332 [LNIND 1986 AP 37] [LNIND 1986 AP 37] [LNIND 1986 AP 37].

74 G.B. Mahajan v. Jalgaon Municipal Corporation, AIR 1991 SC 1153 [LNIND 1990 SC 532] [LNIND 1990 SC 532] [LNIND
1990 SC 532], 1154 : (1991) 3 SCC 91 [LNIND 1990 SC 532] [LNIND 1990 SC 532] [LNIND 1990 SC 532].

75 (1994) 6 SCC 651 [LNIND 1994 SC 665] [LNIND 1994 SC 665] : AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND 1994 SC
665].

76 Tata Cellular v. Union of India (1994) 6 SCC 650 at 675 : AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND 1994 SC 665]:
1995 (1) Arb LR 193.

77 Tata Cellular v. Union of India (1994) 6 SCC 650 at 720 : AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND 1994 SC 665]:
1995 (1) Arb LR 193.

78 Tata Cellular v. Union of India (1994) 6 SCC 650 at 707 : AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND 1994 SC 665]:
1995 (1) Arb LR 193.

79 On Bias, see, JAIN, Treatise, I, Chapter .

80 Union of India v. Hindustan Development Corporation AIR 1994 SC 988 [LNIND 1993 SC 1080] [LNIND 1993 SC 1080]
[LNIND 1993 SC 1080]: JT 1993 (3) SC 15; supra v. Mysore City Municipal AIR 1995 Kant 157 [LNIND 1994 KANT 185]
[LNIND 1994 KANT 185] [LNIND 1994 KANT 185]

81 P.V.K. Satyanarayana v. Government of Andhra Pradesh, AIR 1993 AP 42 [LNIND 1992 AP 213] [LNIND 1992 AP 213]
[LNIND 1992 AP 213].

82 Star Enterprises v. City & Industrial Development Corporation of Maharashtra Ltd. (1990) 2 JT 401 (SC) : (1990) 3 SCC
280: (1991) 71 Comp Cas 1.

83 Krishnan Kakkanth v. Government of Kerala, AIR 1977 SC 129 : (1977) 3 SCC 347.

84 State of Andhra Pradesh v. G. Ramakishan AIR 2001 SC 324 [LNIND 2000 SC 1811] [LNIND 2000 SC 1811] [LNIND 2000
SC 1811]: (2001) 1 SCC 323.

85 AIR 1990 SC 1031 [LNIND 1990 SC 135] [LNIND 1990 SC 135] [LNIND 1990 SC 135], at 1039 : (1990) 69 Comp Cas 746:
(1990) 3 SCC 752 [LNIND 1990 SC 135] [LNIND 1990 SC 135] [LNIND 1990 SC 135].

86 Mahabir Auto Stores v. I.O.C., AIR 1990 SC 1031 [LNIND 1990 SC 135] [LNIND 1990 SC 135] [LNIND 1990 SC 135]:
(1990) 3 SCC 752: (1990) 69 Comp Cas 746. Art. 298 says, "The executive power of the Union and of each State shall extend
to the acquisition, holding and disposed of property and the making of contracts for any purpose., . . .

87 See, infra.

88 Alok Prasad Varma v. Union of India AIR 2001 Pat 211.

89 (2003) 2 SCC 673 [LNIND 2002 SC 1316] [LNIND 2002 SC 1316] [LNIND 2002 SC 1316] : AIR 2003 SC 2562 [LNIND 2002
SC 1316] [LNIND 2002 SC 1316] [LNIND 2002 SC 1316].

90 State of Madhya Pradesh v. Nandlal AIR 1987 SC 251 [LNIND 1986 SC 400] [LNIND 1986 SC 400] [LNIND 1986 SC 400]:
(1986) 3 SCC 566 : (1987) 1 SCR 1 [LNIND 1986 SC 400] [LNIND 1986 SC 400] [LNIND 1986 SC 400]: 1987 Tax LR 1830.
 1380
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91 On ' mala fide exercise of power,' see, JAIN, Treatise, I, Chapter XIX; JAIN, Cases, III, 2068-2135.

92 AIR 1991 SC 1947 [LNIND 1991 SC 364] [LNIND 1991 SC 364] [LNIND 1991 SC 364]: 1991 Supp (2) SCC 313.

93 Harshankar v. Deputy Excise & Taxation Commissioner AIR 1975 SC 1121 [LNIND 1975 SC 587] [LNIND 1975 SC 587]
[LNIND 1975 SC 587]: (1975) 1 SCC 737: 1975 Tax LR 1569; State of Haryana v. Jage Ram AIR 1980 SC 2018 [LNIND 1980
SC 203] [LNIND 1980 SC 203] [LNIND 1980 SC 203]: (1980) 3 SCC 599.

94 See cases discussed above. In earlier Cases, the view was expressed that Art. 299 (1) applied to such contracts. See, A.
Damodaran v. State of Kerala AIR 1976 SC 1533 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC 120]: (1976) 3
SCC 61: 1976 (3) SCR 780 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC 120].

95 State of Haryana v. Lal Chand AIR 1984 SC 1326 [LNIND 1984 SC 138] [LNIND 1984 SC 138] [LNIND 1984 SC 138]:
(1984) 3 SCC 634.

1 On Art. 299(1), see cases discussed above.

2 K.P. Chowdhry v. State of Madhya Pradesh AIR 1967 SC 203 [LNIND 1966 SC 86] [LNIND 1966 SC 86] [LNIND 1966 SC
86]: 1966 (3) SCR 919.

3 State of Haryana v. Jage Ram AIR 1980 SC 2018 [LNIND 1980 SC 203] [LNIND 1980 SC 203] [LNIND 1980 SC 203]:
(1980) 3 SCC 599; State of Punjab v. Dial Chand Gian Chand & Co AIR 1983 SC 743 : (1983) 2 SCC 503.

4 AIR 1972 SC 1816 [LNIND 1972 SC 156] [LNIND 1972 SC 156] [LNIND 1972 SC 156]: (1972) 2 SCC 36.

5 Bhanwarlal v. State of Rajasthan AIR 1976 Raj 215 [LNIND 1976 RAJ 63] [LNIND 1976 RAJ 63] [LNIND 1976 RAJ 63].

6 Makan Kalyan Tandel v. Finance Secretary, AIR 1974 Goa 1.

7 C.K. Achutan v. State of Kerala AIR 1959 SC 490 [LNIND 1958 SC 161] [LNIND 1958 SC 161] [LNIND 1958 SC 161]: 1959
(Supp-1) SCR 787.

8 Purxotoma Ramanata Quenim v. Makan Kalyan Tandel AIR 1974 SC 651 [LNIND 1974 SC 3] [LNIND 1974 SC 3] [LNIND
1974 SC 3]: 1974 (3) SCR 64.

9 Excise Commr v. Prem Jeet Singh AIR 1983 SC 1056 : (1984) 1 SCC 270.

10 Supra., Chapter XIX.

11 On Art. 226, see, infra, under Judicial Control.

12 Excise Commissioner v. Chander Shekhar AIR 1983 SC 1050 : (1983) 4 SCC 224.

13 Excise Commr v. Manminder Singh AIR 1983 SC 1051 : (1983) 4 SCC 318.

14 State of Punjab v. Balbir Singh AIR 1977 SC 1717 [LNIND 1975 SC 383] [LNIND 1975 SC 383] [LNIND 1975 SC 383]:
(1977) 4 SCC 599 (4); State of Punjab v. Ajudhia Nath AIR 1981 SC 1374 [LNIND 1981 SC 279] [LNIND 1981 SC 279]
[LNIND 1981 SC 279]: (1981) 3 SCC 251. On 'Natural Justice', see, JAIN, Treatise, I, Chapter IX; JAIN, Cases, I, Chapter VIII,
466-640.

15 State of Punjab v. Ajudhya Nath AIR 1981 SC 1374 [LNIND 1981 SC 279] [LNIND 1981 SC 279] [LNIND 1981 SC 279]:
(1981) 3 SCC 251.

16 AIR 1984 SC 1326 [LNIND 1984 SC 138] [LNIND 1984 SC 138] [LNIND 1984 SC 138]: (1984) 3 SCC 634.

17 AIR 1976 SC 1533 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC 120]: (1976) 3 SCC 61.

18 On Art. 299, see, supra.

19 Damodaran v. State of Kerala AIR 1976 SC 1533 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC 120]:
(1976) 3 SCC 61: 1976 (3) SCR 780 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC 120].

20 Damodaran v. State of Kerala AIR 1976 SC 1533 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC 120]:
(1976) 3 SCC 61 : 1976 (3) SCR 780 [LNIND 1976 SC 120] [LNIND 1976 SC 120] [LNIND 1976 SC 120]. On S. 70, Contract
Act, see Mulamchand v. State of Madhya Pradesh, AIR 1968 SC 1218 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968
SC 48]: 1968 (3) SCR 214 : 1968 All LJ 745: 1968 Mah LJ 842 [LNIND 1968 SC 48] [LNIND 1968 SC 48] [LNIND 1968 SC 48].

21 Ram Babu v. State AIR 1981 All 16.

22 AIR 1980 SC 680 [LNIND 1979 SC 500] [LNIND 1979 SC 500] [LNIND 1979 SC 500]: (1980) 3 SCC 8.

23 See, under Directions, JAIN, Treatise, I, Chapter VIII; JAIN, Cases, I, 357-465.
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24 AIR 1971 SC 2295 [LNIND 1969 SC 367] [LNIND 1969 SC 367] [LNIND 1969 SC 367]: (1969) 3 SCC 146.

25 Union of India v. Bhimsen Walaiti Ram AIR 1971 SC 2295 [LNIND 1969 SC 367] [LNIND 1969 SC 367] [LNIND 1969 SC
367]: (1969) 3 SCC 146.

26 On the need to publish a rule for its effectuation, see, JAIN, Treatise, I, Chapter VI; JAIN, Cases, I, 316-337.

27 AIR 1984 SC 1326 [LNIND 1984 SC 138] [LNIND 1984 SC 138] [LNIND 1984 SC 138]: (1984) 3 SCC 634.

28 On Art. 299(1), see, supra.

29 State of Haryana v. Jage Ram, AIR 1980 SC 2018 [LNIND 1980 SC 203] [LNIND 1980 SC 203] [LNIND 1980 SC 203]:
(1980) 3 SCC 599.

30 State of Haryana v. Jage Ram AIR 1980 SC 2018 [LNIND 1980 SC 203] [LNIND 1980 SC 203] [LNIND 1980 SC 203]:
(1980) 3 SCC 599.

31 State of Uttar Pradesh v. Shiv Charan Sharma, AIR 1981 SC 1722 : 1981 Supp SCC 85.

32 For discussion on 'Directive Principles of State Policy' in the Constitution, see, M.P. JAIN, Indian Constitutional Law, Chapter
XXXIV, 1595-1634. Also see, supra, Chapter XX .

33 G.D. Zalani v. Union of India AIR 1995 SC 1178 [LNIND 1995 SC 1427] [LNIND 1995 SC 1427] [LNIND 1995 SC 1427]:
1995 Supp (2) SCC 512.

34 Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir AIR 1980 SC 1992 [LNIND 1980 SC 250] [LNIND 1980 SC 250]
[LNIND 1980 SC 250]: (1980) 4 SCC 1.

35 AIR 1981 SC 344 : 1981 (1) LLJ 193: (1981) 1 SCC 568 [LNIND 1980 SC 455] [LNIND 1980 SC 455] [LNIND 1980 SC 455].

36 AIR 1984 Guj 134.

37 On ' Locus Standi', see, infra, under 'Judicial Control.'

38 AIR 1982 SC 872 [LNIND 1982 SC 48] [LNIND 1982 SC 48] [LNIND 1982 SC 48]: (1982) 1 SCC 627.

39 Seven Seas Education Society v. Haryana Urban Development Authority, AIR 1993 P&H 71.

40 Ramana Dayaram Shetty v. International Airport Authority of Union of India AIR 1979 SC 1628 [LNIND 1979 SC 275]
[LNIND 1979 SC 275] [LNIND 1979 SC 275]: 1979 (2) LLJ 217: (1979) 3 SCC 489 [LNIND 1979 SC 275] [LNIND 1979 SC 275]
[LNIND 1979 SC 275].

41 AIR 1969 SC 1081 [LNIND 1969 SC 13] [LNIND 1969 SC 13] [LNIND 1969 SC 13], 1086 : (1969) 1 SCC 414 [LNIND 1969
SC 13] [LNIND 1969 SC 13] [LNIND 1969 SC 13].

42 See, JAIN, Treatise, I, Chapter XVIII ; JAIN, Cases, II, Chapter XV .

43 Sriniketan Coop. G.H. Socy. Ltd v. Vikas Vihar Coop. Group Housing Socy. Ltd AIR 1989 SC 1673 : (1989) 3 SCC 368 : JT
1989 (2) SC 309.

44 (1990) 3 SCC 280, 281 : JT 1990 (2) SC 401.

45 Bal Kalyani v. State of Maharashtra AIR 1993 Bom, 10; JAIN, Treatise, I, Chapter XIX.

46 AIR 1988 Raj 145.

47 AIR 1982 Del 51 [LNIND 1970 DEL 49] [LNIND 1970 DEL 49] [LNIND 1970 DEL 49].

48 S.S. Sobti v. Union of India AIR 1982 Del 51 [LNIND 1970 DEL 49] [LNIND 1970 DEL 49] [LNIND 1970 DEL 49], 52.

49 On 'Public Interest Litigation', see, infra, under Judicial Control.

50 Bhupal Anna Vibhute v. Collector of Kolhapur AIR 1996 Bom 314 [LNIND 1996 BOM 269] [LNIND 1996 BOM 269] [LNIND
1996 BOM 269].

51 Bhupal Anna Vibhute v. Collector of Kolhapur AIR 1996 Bom 314 [LNIND 1996 BOM 269] [LNIND 1996 BOM 269] [LNIND
1996 BOM 269]at 331, 332 : 1996 (3) Bom CR 717 [LNIND 1996 BOM 269] [LNIND 1996 BOM 269] [LNIND 1996 BOM 269].

52 See also, Sriniketan Coop. Group Housing Society Ltd. v. Vikas Vihar Coop. Group Housing Society, AIR 1989 SC 1673 :
(1989) 3 SCC 368.

53 AIR 1987 SC 1109 [LNIND 1987 SC 159] [LNIND 1987 SC 159] [LNIND 1987 SC 159]: (1987) 2 SCC 295.
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54 A.P. Dalit Mahasabha v. Govt. of A.P. AIR 1999 AP 208 [LNIND 1999 AP 146] [LNIND 1999 AP 146] [LNIND 1999 AP 146].

55 AIR 1988 SC 157 [LNIND 1987 SC 766] [LNIND 1987 SC 766] [LNIND 1987 SC 766]: (1968) 1 SCC 166.

56 Mahesh Chandra v. Regional Manager, U.P. (1993) 2 SCC 279 [LNIND 1992 SC 152] [LNIND 1992 SC 152] [LNIND 1992
SC 152], 283 : AIR 1993 SC 935 [LNIND 1992 SC 152] [LNIND 1992 SC 152] [LNIND 1992 SC 152]: (1993) 78 Comp Cas 1.

57 AIR 1993 SC 1601 [LNIND 1992 SC 794] [LNIND 1992 SC 794] [LNIND 1992 SC 794]: (1993) 1 SCC 71.

58 Seghal Refrigerating Corpn v. National Fertilizers Ltd AIR 1988 P&H 66.

59 Shankarlal v. Indore Development Authority, AIR 1995 MP 182.

60 See, JAIN, Treatise, I, Chapter XIX, Chapter XIX, for discussion on this concept. Also see, JAIN, Cases, III, Chapter XVI,
2306-2316.

61 AIR 1986 SC 1158 [LNIND 1986 SC 94] [LNIND 1986 SC 94] [LNIND 1986 SC 94]: (1986) 3 SCC 391.

62 K. Ram Mohan Rao v. Endowments Commr, Bangalore, AIR 1989 Knt 192.

63 (1989)2 SCC 505 [LNIND 1989 SC 680] [LNIND 1989 SC 680] [LNIND 1989 SC 680], 516 : AIR 1989 SC 997 [LNIND 1989
SC 680] [LNIND 1989 SC 680] [LNIND 1989 SC 680]: JT 1989 (1) SC 118.

64 For Writ petitions, see, infra, under Also, infra, Judicial Control.

65 AIR 1986 SC 872 [LNIND 1985 SC 321] [LNIND 1985 SC 321] [LNIND 1985 SC 321]: (1986) 1 SCC 133.

66 Balco Employees Union (Regd.) v. Union of India AIR 2002 SC 350 : 2001 (1) LLJ 550: (2002) 2 SCC 333.

67 For discussion on "Public Sector Undertaking", see, infra, last Chapter.

68 But, see Union of India v. Dinesh Engineering Corpn. (2001) 8 SCC 491 [LNIND 2001 SC 2091] [LNIND 2001 SC 2091]
[LNIND 2001 SC 2091] : AIR 2001 SC 3887 [LNIND 2001 SC 2091] [LNIND 2001 SC 2091] [LNIND 2001 SC 2091]: 2001 (3)
Arb LR 438. For cases on "Judicial Review of Economic Policy".

69 For discussion of the Writ System, see, infra, under Judicial Review.

70 AIR 1975 SC 266 [LNIND 1974 SC 357] [LNIND 1974 SC 357] [LNIND 1974 SC 357]: (1975) 1 SCC 70; JAIN, Treatise, I,
Chapters IX and X; JAIN, Cases, I, 511.

71 AIR 1980 AP 236 [LNIND 1979 AP 67] [LNIND 1979 AP 67] [LNIND 1979 AP 67].

72 See such CASES as : Fasih Chaudhary v. Director General, Doordarshan AIR 1989 SC 157 [LNIND 1988 SC 490] [LNIND
1988 SC 490] [LNIND 1988 SC 490]: (1989) 1 SCC 89; Tata Cellular v. Union of India AIR 1996 SC 11 [LNIND 1994 SC 665]
[LNIND 1994 SC 665]: (1994) 6 SCC 651; F.C.I. v. Kamdhenu Cattle Feed Industries, (1993) 1 SCC 71 [LNIND 1992 SC 794]
[LNIND 1992 SC 794] [LNIND 1992 SC 794] : AIR 1993 SC 1601 [LNIND 1992 SC 794] [LNIND 1992 SC 794] [LNIND 1992
SC 794]: JT 1992 (6) SC 85(2); Sterling Computers Ltd v. M.&N. Publications Ltd. (1993) 1 SCC 445 : AIR 1996 SC 51.

73 Tata Collular v. Union of India AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND 1994 SC 665]: JT 1994 (4) SC 532: 1995 (1)
Arb LR 193; Air India Ltd. v. Cochin International Airport Ltd. 2000 SC 801 : (2000) 2 SCC 617.

74 G.J. Fernandez v. State of Karnataka AIR 1990 SC 958 [LNIND 1990 SC 55] [LNIND 1990 SC 55] [LNIND 1990 SC 55]:
(1990) 2 SCC 488; Common Cause Registered Society v. Union of India AIR 1999 SC 2979 [LNIND 1999 SC 637] [LNIND
1999 SC 637] [LNIND 1999 SC 637], 2994 : (1999) 6 SCC 667 [LNIND 1999 SC 637] [LNIND 1999 SC 637] [LNIND 1999 SC
637]: JT 1999 (5) SC 237 [LNIND 1999 SC 637] [LNIND 1999 SC 637] [LNIND 1999 SC 637]; Kanhaiya Lal v. Union of India
AIR 2002 SC 2706 : (2002) 6 SCC 315.

75 Sterling Computers Ltd. v. M&N. Publications Ltd. AIR 1996 SC 51 : (1993) 1 SCC 445.

76 Asia Foundation & Construction Ltd. v. Trafalgar House Construction Ltd. (1997) 1 SCC 738 [LNIND 1996 SC 2161] [LNIND
1996 SC 2161] [LNIND 1996 SC 2161] : JT 1997 (1) SC 309 [LNIND 1996 SC 2161] [LNIND 1996 SC 2161] [LNIND 1996 SC
2161]; Raunaq International Ltd. v. IVR Construction AIR 1999 SC 393 [LNIND 1998 SC 1235] [LNIND 1998 SC 1235] [LNIND
1998 SC 1235]: (1999) 1 SCC 492: 1999 (1) Arb LR 431.

77 Centre for Public Interest Litigation v. Union of India AIR 2001 SC 80 [LNIND 2000 SC 1367] [LNIND 2000 SC 1367]
[LNIND 2000 SC 1367]: (2000) 8 SCC 606: 2001 Arb LR 319.

78 Union of India v. Graphic Industries Ltd. (1994) 5 SCC 398 : AIR 1995 SC 409: JT 1994 (5) SC 237.

79 Asia Foundation and Construction Ltd. v. Trafalgar House Construction (I) Ltd. (1997) 1 SCC 738 [LNIND 1996 SC 2161]
[LNIND 1996 SC 2161] [LNIND 1996 SC 2161] : JT 1997 (1) SC 309 [LNIND 1996 SC 2161] [LNIND 1996 SC 2161] [LNIND
1996 SC 2161].
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80 Sterling Computers Ltd. v. M and N. Publications Ltd. AIR 1996 SC 51 : (1993) 1 SCC 445.:

81 New Horizons Ltd. v. Union of India (1995) 1 SCC 478 [LNIND 1994 SC 1033] [LNIND 1994 SC 1033] [LNIND 1994 SC
1033].

82 For discussion on Wednesbury, see; TREATISE, I, Chapter XIX .

83 Also see, Delhi Science Forum v. Union of India (1996) 2 SCC 405 [LNIND 1996 SC 421] [LNIND 1996 SC 421] [LNIND
1996 SC 421] : JT 1996 (2) SC 295 [LNIND 1996 SC 421] [LNIND 1996 SC 421] [LNIND 1996 SC 421]: 1996 (1) Cur CC 235;
Tata Cellular v. Union of India AIR 1996 SC 11 [LNIND 1994 SC 665] [LNIND 1994 SC 665]: 1995 (1) Arb LR 193: JT 1994 (4)
SC 532 [LNIND 1994 SC 665] [LNIND 1994 SC 665].

84 Raunaq International Ltd. v. I.V.R. Construction Ltd. AIR 1999 SC 393 [LNIND 1998 SC 1235] [LNIND 1998 SC 1235]
[LNIND 1998 SC 1235]: (1999) 1 SCC 492. Also see, Centre for Public Interest Litigation v. Union of India AIR 2001 SC 80
[LNIND 2000 SC 1367] [LNIND 2000 SC 1367] [LNIND 2000 SC 1367]: (2000) 8 SCC 606; Common Cause v. Union of India
AIR 1999 SC 2979 [LNIND 1999 SC 637] [LNIND 1999 SC 637] [LNIND 1999 SC 637]: 1999 (4) Scale 354; G.J. Fernandez v.
State of Karnataka AIR 1990 SC 958 [LNIND 1990 SC 55] [LNIND 1990 SC 55] [LNIND 1990 SC 55]: (1990) 2 SCC 488.:

85 Raunaq International Ltd. v. I.V.R. Construction Ltd., AIR 1999 SC 393 [LNIND 1998 SC 1235] [LNIND 1998 SC 1235]
[LNIND 1998 SC 1235]: (1999) 1 SCC 492: Common Cause, a Registered Society v. U.O.I., AIR 1999 SC 2979 [LNIND 1999
SC 637] [LNIND 1999 SC 637] [LNIND 1999 SC 637]: (1999) 6 SCC 667.

86 C.K. Achutan v. State of Kerala, AIR 1959 SC 490 [LNIND 1958 SC 161] [LNIND 1958 SC 161] [LNIND 1958 SC 161]:
1959 Supp (1) SCR 787.

87 Har Shankar v. Deputy Excise & Taxation Commr., AIR 1975 SC 1121 [LNIND 1975 SC 587] [LNIND 1975 SC 587] [LNIND
1975 SC 587]: (1975) 1 SCC 737.

88 D.F.O. v. Ram Sanehi Singh, AIR 1973 SC 205 : (1971) 3 SCC 864; JAIN, Cases, I, 510; also see, infra.

89 C.K. Achutan v. State of Kerala, AIR 1959 SC 490 [LNIND 1958 SC 161] [LNIND 1958 SC 161] [LNIND 1958 SC 161]:
1995 Supp (1) SCR 787; Lekhraj Sathram Das v. Dy. Custodian, AIR 1966 SC 334 [LNIND 1965 SC 156] [LNIND 1965 SC
156] [LNIND 1965 SC 156]: (1966) 1 SCR 120; Umakant Saran v. State of Bihar, AIR 1973 SC 964 [LNIND 1972 SC 500]
[LNIND 1972 SC 500] [LNIND 1972 SC 500]: 1972 (2) LLJ 580: (1973) 1 SCC 485 [LNIND 1972 SC 500] [LNIND 1972 SC 500]
[LNIND 1972 SC 500]; M.P. Oil Extraction Pvt. Ltd. v. State, AIR 1982 MP 1 [LNIND 1981 MP 78] [LNIND 1981 MP 78] [LNIND
1981 MP 78]; Allied Oil Industries Pvt. Ltd. v. State, AIR 1983 MP 158; Kerala State Electricity Board v. Kurian Kalathil, AIR
2000 SC 2573 [LNIND 2000 SC 936] [LNIND 2000 SC 936]: (2000) 6 SCC 489: JT 2000 (8) SC113; State of Kerala v. K.P.W
AIR 2001 Ker 60.

90 Kulchhinder Singh v. Hardayal Singh, AIR 1976 SC 2216 [LNIND 1976 SC 103] [LNIND 1976 SC 103] [LNIND 1976 SC
103]: 1976 (2) LLJ 204: (1976) 3 SCC 828 [LNIND 1976 SC 103] [LNIND 1976 SC 103] [LNIND 1976 SC 103].

91 Kulchhinder Singh v. Hardayal Singh, AIR 1976 SC 2216 [LNIND 1976 SC 103] [LNIND 1976 SC 103] [LNIND 1976 SC
103]: 1976 (2) LLJ 204 : (1976) 3 SCC 828 [LNIND 1976 SC 103] [LNIND 1976 SC 103] [LNIND 1976 SC 103] : 1976 (2) SLR
22: (1977) 34 FLR 53.

92 AIR 1977 SC 1496 [LNIND 1977 SC 137] [LNIND 1977 SC 137] [LNIND 1977 SC 137]: (1977) 3 SCC 457.

93 AIR 1977 SC 1717 [LNIND 1975 SC 383] [LNIND 1975 SC 383] [LNIND 1975 SC 383]: (1977) 4 SCC 599 (4).

94 AIR 1974 Pat 230.

95 N.T. Abraham v. State of Kerala, AIR 2000 SC 3459 : (1959) 9 SCC 280: 1999 (37) Arb LR 432. Also, Radharaman
Enterprises v. Cuttack Municipal Corp., AIR 2001 Ori 57 [LNIND 2000 ORI 100] [LNIND 2000 ORI 100] [LNIND 2000 ORI 100].

96 AIR 1981 SC 1368 [LNIND 1981 SC 271] [LNIND 1981 SC 271] [LNIND 1981 SC 271]: (1981) 3 SCC 238. Also see,
Woodcrafts Assam v. Chief Conservator of Forests, AIR 1971 Ass 92.

97 AIR 1981 SC 1368 [LNIND 1981 SC 271] [LNIND 1981 SC 271] [LNIND 1981 SC 271]at 1373 : 1981 (1) Scale 771 [LNIND
1981 SC 271] [LNIND 1981 SC 271] [LNIND 1981 SC 271].

1 Har Shankar v. Deputy Excise & Taxation Commissioner, AIR 1975 SC 1121 [LNIND 1975 SC 587] [LNIND 1975 SC 587]
[LNIND 1975 SC 587]: (1975) 1 SCC 737.

2 Har Shankar v. Deputy Excise and Taxation Commissioner, AIR 1975 SC 1121 [LNIND 1975 SC 587] [LNIND 1975 SC 587]
[LNIND 1975 SC 587]at 1125 : (1975) 1 SCC 737 [LNIND 1975 SC 587] [LNIND 1975 SC 587] [LNIND 1975 SC 587].

3 AIR 1993 SC 494 : 1993 Supp (3) SCC 635.

4 See, for example, Sham Lal v. Punjab, AIR 1976 SC 2045 : (1977) 1 SCC 336; M.M. Breweries, supra; N.L. Dalmia, supra.

5 FRIEDMANN, Law in a Changing Society, 371(1959); MITCHELL, Contracts of Public Authorities; Note on Remedies against
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the United States, 70 Harv LR 884.

6 Supra.

7 (1989) 2 SCC 116 [LNIND 1989 SC 107] [LNIND 1989 SC 107] [LNIND 1989 SC 107], 117 : AIR 1989 SC 1076 [LNIND 1989
SC 107] [LNIND 1989 SC 107] [LNIND 1989 SC 107]: JT 1989 (1) SC 368.

8 (1994) 5 SCC 398 : AIR 1995 SC 409.

9 Reference was made to the following Cases: Mahabir Auto Stores v. Indian Oil Corporation, AIR 1990 SC 1031 [LNIND
1990 SC 135] [LNIND 1990 SC 135] [LNIND 1990 SC 135]: JT 1990 (1) SC 363: (1990) 3 SCC 752 [LNIND 1990 SC 135]
[LNIND 1990 SC 135] [LNIND 1990 SC 135]; JAIN, Treatise, v. Board of Trustees of the Port of Bombay, AIR 1989 SC 1642
[LNIND 1989 SC 261] [LNIND 1989 SC 261] [LNIND 1989 SC 261]: (1989) 3 SCC 293; JAIN, Treatise, v. State of Rajasthan,
AIR 1981 SC 1681 [LNIND 1978 SC 204] [LNIND 1978 SC 204] [LNIND 1978 SC 204]: (1980) 1 SCC 599.

10 AIR 1984 Del 246 [LNIND 1983 DEL 360] [LNIND 1983 DEL 360] [LNIND 1983 DEL 360]. For facts, decision and comments
on the case, see, infra.

11 Rukmanibai Gupta v. Collector, AIR 1981 SC 479 : (1980) 4 SCC 556.

12 Also see, E. Venkatakrishna v. Indian AIR 1989 Knt 35.

13 Kerala State Electricity Board v. Kurien E. Kalathil, AIR 2000 SC 2573 [LNIND 2000 SC 936] [LNIND 2000 SC 936]: (2000)
6 SCC 293; Abraham v. State of Kerala, AIR 2000 SC 3459 : (1999) 9 SCC 280; Radharaman Enterprises v. Cuttack
Municipal Corpn AIR 2001 Ori 57 [LNIND 2000 ORI 100] [LNIND 2000 ORI 100] [LNIND 2000 ORI 100]; State of Bihar v. Jain
Plastics and Chemicals Ltd., AIR 2002 SC 206 [LNIND 2001 SC 2639] [LNIND 2001 SC 2639] [LNIND 2001 SC 2639]: (2002)
1 SCC 216: 2001 (3) Arb LR 686.

14 Mafatlal v. Divil, Controller, State Road Transport Corp., AIR 1966 SC 1364 [LNIND 1965 SC 372] [LNIND 1965 SC 372]
[LNIND 1965 SC 372]: 1966 (1) LLJ 437: 1966 (3) SCR 40 [LNIND 1965 SC 372] [LNIND 1965 SC 372] [LNIND 1965 SC 372];
Sukhdev v. Bhagatram, AIR 1975 SC 1331 [LNIND 1975 SC 79] [LNIND 1975 SC 79] [LNIND 1975 SC 79]: (1975) 1 SCC 421:
1975 (1) LLJ 399 [LNIND 1975 SC 79] [LNIND 1975 SC 79] [LNIND 1975 SC 79]. Guruswamy v. Mysore, AIR 1954 SC 592
[LNIND 1954 SC 104] [LNIND 1954 SC 104] [LNIND 1954 SC 104]: 1954 SCJ 644.

15 Bal Krishnan v. State, AIR 1975 HP 30

16 Emphasis added.

17 AIR 1972 SC 1450 [LNIND 1972 SC 70] [LNIND 1972 SC 70] [LNIND 1972 SC 70]: 1972 LLJ 442 : (1972) 1 SCC 623
[LNIND 1972 SC 70] [LNIND 1972 SC 70] [LNIND 1972 SC 70]. On appeal, AIR 1976 SC 888 [LNIND 1975 SC 514] [LNIND
1975 SC 514] [LNIND 1975 SC 514]: (1976) 2 SCC 58. Also, Vaish Degree College v. Lakshmi Narain, AIR 1974 All 1.

18 (1965) 2 SCR 713 [LNIND 1965 SC 5] [LNIND 1965 SC 5] [LNIND 1965 SC 5] : 1971 (1) LLJ 26.

19 AIR 1988 Del 277.

20 Surendra Nath v. DDA, AIR 1988 Del 276 [LNIND 1988 DEL 45] [LNIND 1988 DEL 45] [LNIND 1988 DEL 45]at 281 :
(1988) 14 DRJ 326 [LNIND 1988 DEL 45] [LNIND 1988 DEL 45] [LNIND 1988 DEL 45].

21 Surendra Nath v. DDA, AIR 1988 Del 276 [LNIND 1988 DEL 45] [LNIND 1988 DEL 45] [LNIND 1988 DEL 45]at 279 :
(1988) 14 DRJ 326 [LNIND 1988 DEL 45] [LNIND 1988 DEL 45] [LNIND 1988 DEL 45].

22 D.F.O. v. Ram Sanehi Singh, AIR 1973 SC 205 : (1971) 3 SCC 864; JAIN, Treatise I; JAIN, Cases, I, 510.

23 AIR 1954 SC 592 [LNIND 1954 SC 104] [LNIND 1954 SC 104] [LNIND 1954 SC 104]: 1954 SCJ 644. Here the rules
envisaged grant of a liquor contract through an auction. But the contract was awarded through private negotiation. The Court
held that the granting of the liquor contract was against the rules in question. The Court said that ordinarily it would have
granted the writ sought by the appellant "for deeper considerations are also at stake, namely, the elimination of favouritism and
nepotism and corruption." AIR 1954 SC 592 [LNIND 1954 SC 104] [LNIND 1954 SC 104] [LNIND 1954 SC 104]at 596 : 1955
SCR 305 [LNIND 1954 SC 104] [LNIND 1954 SC 104] [LNIND 1954 SC 104].

24 (1975) XI A.S.I.L. 505.

25 AIR 1973 MP 26 [LNIND 1972 MP 109] [LNIND 1972 MP 109] [LNIND 1972 MP 109].

26 Chowgle & Co. v. Union of India, AIR 1982 Goa 19.

27 AIR 1975 Mad 81 [LNIND 1974 MAD 185] [LNIND 1974 MAD 185] [LNIND 1974 MAD 185]; JAIN, Treatise I.

28 On Natural Justice, see, JAIN, Treatise,: I, Chapter IX .

29 AIR 1990 SC 1417 [LNIND 1990 SC 161] [LNIND 1990 SC 161] [LNIND 1990 SC 161]: (1990) 3 SCC 182.
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30 AIR 1975 Pat 123.

31 AIR 1978 Pat 157.

32 Supra, Chapter XXII.

33 AIR 1975 HP 30.

34 Bal Krishan v. State, AIR 1975 HP 30 at 32 : 1975 (1) SLR 574.

35 For a similar ruling, see, Shital Prasad v. M. Saidullah, AIR 1975 All 344.

36 AIR 1982 Guj 198 [LNIND 1982 GUJ 158] [LNIND 1982 GUJ 158] [LNIND 1982 GUJ 158]; supra, Chapter XXII.

37 AIR 1983 SC 848 : (1983) 3 SCC 379; Supra, Chapter XXII.

38 Gujarat State Financial Corpn. v. Lotus Hotels Pvt. Ltd., AIR 1983 SC 848, 851 : (1983) 3 SCC 379.

39 Gujarat State Financial Corpn. v. Lotus Hotels Pvt. Ltd., AIR 1983 SC 848, 852 : (1983) 3 SCC 379. For the concept of
'authority' see, infra, under 'Judicial Control'.

40 AIR 1984 Del 246 [LNIND 1983 DEL 360] [LNIND 1983 DEL 360] [LNIND 1983 DEL 360]. But this ruling does not seem to
be in accord with the ruling of the same High Court in Ram Ratan v. Delhi, AIR 1984 Del 224 [LNIND 1983 DEL 93] [LNIND
1983 DEL 93] [LNIND 1983 DEL 93], where the court has ruled that cancellation arbitrarily and in a discriminatory manner of a
lease of land granted by the President (or the D.D.A. on his behalf) under the Government Grants Act can be challenged
through a writ petition.

41 Gujarat State Financial Corpn. v. Lotus Hotel Pvt. Ltd., AIR 1983 SC 848 : 1993 (2) Comp LJ 202.

42 AIR 1979 Ori 120 [LNIND 1979 ORI 63] [LNIND 1979 ORI 63] [LNIND 1979 ORI 63].

43 Edward Keventers v. Union of India, AIR 1983 Del 376 [LNIND 1983 DEL 32] [LNIND 1983 DEL 32] [LNIND 1983 DEL 32].

44 AIR 1975 All 344.

45 JAIN, Treatise, I, Chapter IX; JAIN, Cases, I, 594-608.

46 Also see, Mangat Ram v. Delhi Dev. AIR 1984 Del 246 [LNIND 1983 DEL 360] [LNIND 1983 DEL 360] [LNIND 1983 DEL
360]: 1984 Rajdhani LR 223.

47 AIR 1975 Del 27 [LNIND 1973 DEL 222] [LNIND 1973 DEL 222] [LNIND 1973 DEL 222]. Also see, supra.

48 M.C. Joseph v. State of Kerala, AIR 1973 Ker 216 [LNIND 1973 KER 41] [LNIND 1973 KER 41] [LNIND 1973 KER 41].

49 LIC v. Escorts Ltd., AIR 1986 SC 1370 [LNIND 1985 SC 362] [LNIND 1985 SC 362] [LNIND 1985 SC 362], at 1424 : (1986)
1 SCC 264 [LNIND 1985 SC 362] [LNIND 1985 SC 362] [LNIND 1985 SC 362]. Also see, LIC of India v. Consumer Education
& Research Centre, AIR 1995 SC 1811 [LNIND 1995 SC 665] [LNIND 1995 SC 665] [LNIND 1995 SC 665], at 1823 : (1995) 5
SCC 482 [LNIND 1995 SC 653] [LNIND 1995 SC 653] [LNIND 1995 SC 653].:

50 Common Cause, v. Union of India, AIR 1999 SC 2979 [LNIND 1999 SC 637] [LNIND 1999 SC 637] [LNIND 1999 SC 637]:
(1999) 6 SCC 667.

51 Ram Chandra Singh v. State, AIR 1984 Pat 18.

52 AIR 1978 Ori 41 [LNIND 1977 ORI 28] [LNIND 1977 ORI 28] [LNIND 1977 ORI 28]. Also, Linga Gowder v. State, AIR 1971
Mad 28 [LNIND 1969 MAD 324] [LNIND 1969 MAD 324] [LNIND 1969 MAD 324].

53 AIR 1987 Guj 20.

54 For explanation of the concept of "other authority" under Art. 12 of the Constitution , see , infra, Chapter

55 On Directions/Instructions, see, Treatise, I, Chapter VIII ; Cases, I, Chapter VII .

56 AIR 1987 Guj 24.

57 This aspect has been dealt with earlier, see, supra.

58 AIR 1977 SC 1496 [LNIND 1977 SC 137] [LNIND 1977 SC 137] [LNIND 1977 SC 137]: (1977) 3 SCC 457.

59 AIR 1980 SC 738 [LNIND 1979 SC 502] [LNIND 1979 SC 502] [LNIND 1979 SC 502]: (1980) 2 SCC 129.

60 Prag Mill,AIR 1978 SC 1296 [LNIND 1978 SC 69] [LNIND 1978 SC 69] [LNIND 1978 SC 69]: 1978 Crlj 1281 : (1978) 3 SCC
459 [LNIND 1978 SC 69] [LNIND 1978 SC 69] [LNIND 1978 SC 69]; AIR 1979 SC 321 [LNIND 1978 SC 257] [LNIND 1978 SC
 1386
Page 333

257] [LNIND 1978 SC 257]: (1979) 1 SCC 137.

61 See, Gujarat State Financial Corp. v. Lotus Hotels Pvt. Ltd., AIR 1983 SC 848 : (1983) 3 SCC 379; Mahabir Auto Stores v.
Indian Oil Corporation, AIR 1990 SC 1031 [LNIND 1990 SC 135] [LNIND 1990 SC 135] [LNIND 1990 SC 135]: (1990) 3 SCC
752; supra.

62 AIR 1981 Del 280 [LNIND 1981 DEL 202] [LNIND 1981 DEL 202] [LNIND 1981 DEL 202].

63 D.C.M. Ltd. v. Asstt. Engineer, (HMT Sub-Divn.) R.S.E.B., AIR 1988 Raj 68.

64 AIR 1986 SC 1571 [LNIND 1986 SC 560] [LNIND 1986 SC 560] [LNIND 1986 SC 560]: 1986 (2) LLJ 171: (1986) 3 SCC
156 [LNIND 1986 SC 560] [LNIND 1986 SC 560] [LNIND 1986 SC 560]; JAIN, Cases,: I, 228; Treatise,: I.

65 Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay, AIR 1989 SC 1642 [LNIND 1989 SC 261] [LNIND
1989 SC 261] [LNIND 1989 SC 261]: (1989) 3 SCC 293.

66 Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay, AIR 1989 SC 1642 [LNIND 1989 SC 261] [LNIND
1989 SC 261] [LNIND 1989 SC 261]: (1989) 3 SCC 293.

67 Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay, AIR 1989 SC 1642 [LNIND 1989 SC 261] [LNIND
1989 SC 261] [LNIND 1989 SC 261]: (1989) 3 SCC 293.

68 Dwarkadas Marfatia & Sons v. Board of Trustees of the Port of Bombay, AIR 1989 SC 1642 [LNIND 1989 SC 261] [LNIND
1989 SC 261] [LNIND 1989 SC 261]: (1989) 3 SCC 293.

69 AIR 1986 Bom 412 [LNIND 1985 BOM 235] [LNIND 1985 BOM 235] [LNIND 1985 BOM 235].

70 Asha Goel v. Life Corpn. of India, AIR 1986 Bom 412 [LNIND 1985 BOM 235] [LNIND 1985 BOM 235] [LNIND 1985 BOM
235]at 417 : ILR (1986) Bom 306 [LNIND 1985 BOM 235] [LNIND 1985 BOM 235] [LNIND 1985 BOM 235].

71 Asha Goel v. Life Corpn. of India, AIR 1986 Bom 412 [LNIND 1985 BOM 235] [LNIND 1985 BOM 235] [LNIND 1985 BOM
235], 472 : ILR (1986) Bom 306 [LNIND 1985 BOM 235] [LNIND 1985 BOM 235] [LNIND 1985 BOM 235].

72 (1991) 1 SCC 212 [LNIND 1990 SC 565] [LNIND 1990 SC 565] [LNIND 1990 SC 565], 228 : AIR 1991 SC 537 [LNIND 1990
SC 565] [LNIND 1990 SC 565] [LNIND 1990 SC 565]: 1990 (6) SLR 1; JAIN, Cases, II, 1738-1748; JAIN, Cases, II, 1738; JAIN,
Treatise, I, Chapter XVIII.

73 JAIN, Cases, II, 1740.

74 The Court referred to Dwarakadas Mafatia v. Board of Trustees of the Port of Bombay, AIR 1989 SC 1642 [LNIND 1989 SC
261] [LNIND 1989 SC 261] [LNIND 1989 SC 261]: (1989) 3 SCC 379 and Mahabir Auto Stores v. I.O.C., AIR 1990 SC 1031
[LNIND 1990 SC 135] [LNIND 1990 SC 135] [LNIND 1990 SC 135]: (1990) 3 SCC 752 : (1990) 69 Comp Cas 746: in support of
this proposition.

75 JAIN, Cases, II, 1741.

76 D. Wren Intl Ltd. v. Engineers India Ltd., AIR 1996 Cal 424 [LNIND 1996 CAL 94] [LNIND 1996 CAL 94] [LNIND 1996 CAL
94], 444.

M P Jain Principles of Administrative Law/M P Jain Principles of Administrative Law/Volume 2/CHAPTER

XXVIII RESTITUTION

CHAPTER XXVIII

RESTITUTION

1. DOCTRINE OF RESTITUTION

Many a time a question arises whether one can recover any money paid by him to the government which it
was not legally entitled to receive. A tax may become unauthorized if the relevant taxing provision is declared
unconstitutional for transgressing any constitutional limitation. This may be regarded as an unconstitutional
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levy. A tax may also become unauthorised if it is not levied or collected in accordance with the provisions of
the relevant taxing law. This may be regarded as an illegal levy.

What is the position of a payment made under a tax law which is later declared to be unconstitutional? What
is the basis of restitutory claims against a public body? For example, house owners may be required to pay
sewerage charges even if their houses are not connected to the public sewers. The government may impose
a levy without legal authorization. If the demand is held to the ultra vires, all levies taken by the government
would be without legal authority. Can the person making the payment claim back the money?

In principle, all payments in response to unauthorised official demands ought to be recoverable, unless there
is some good reason to the contrary.1 A tax or money collected by the government without authority of law is
refundable.2 This is known as the principle of restitution. The principle applies not only to payments of
money, but also to property seized by the Administration, without legal authority. If seizure of property is
wrongful, the owner of the property would be entitled to get back the seized property, or, in the alternative, to
the payment of compensation equivalent to the value of the property.3

The Supreme Court has enunciated the principle of restitution in several cases. For example, the Court has
observed in Salonah Tea Co. v. Superintendent of Taxes, Nowgong :4

"Normally speaking in a society governed by rule of law taxes should be paid by citizens as soon as they are due in
accordance with law. Equally, as a corollary of the said statement of law it follows that taxes collected without the
authority of law . . . from a citizen should be refunded because no state has the right to receive or retain taxes or
monies realised from citizens without the authority of law."

The Court has further said in the instant case that "refunding the amount as a consequence of declaring the
assessment to be bad and recovery to be illegal will be in consonance with justice, equity and good
conscience."5

Again, in Union of India v. I.T.C. Ltd., 6 the Supreme Court has stated in this connection :
"It has been settled by this Court that where excess duty was not payable by the party under the provisions of a statute
but had in fact been paid under a mistake of law, the party has a right to recover it and there is a corresponding legal
obligation on the part of the Government to refund the excess duty so collected because the collection in such cases
would be without the authority of law."

Thus, the basis of restitution is the doctrine of ultra vires. The general principle is that if any payment has
been made to the Government under a void law, or if the law being lawful but the payment is ultra vires the
law, then the state is not entitled to retain the same, and is bound to refund the amount, and the payee has a
right to claim restitution of the amount so paid by him.

(a) Art. 265 of the Constitution

In this connection, reference may be made to Art. 265 of the Constitution. This constitutional provision
enjoins that no tax shall be levied or collected except by authority of law. Thus, the basic principle is that the
executive has no power to impose or levy any tax upon the people without the sanction of law. Art. 265
protects the citizen from any unlawful levy. A tax cannot be levied in India merely by executive fiat without
there being a law to support the same. A tax realized without authority of law is bad under Art. 265.7

The term 'law' in Art. 265 means a valid law. The mandate of Art. 265 is that there must be a valid law for
making assessment and recovering a tax, and that the tax must be imposed and collected according to the
legal provisions. No tax can be levied merely by an executive fiat not based in statutory authority.8

An assessment of a tax would be illegal when the relevant tax law transgresses the constitutional limitations.
The Constitution imposes several restrictions on the power of Parliament and the State Legislatures to enact
tax laws, e.g., a tax ought to fall within the legislative domain of the concerned legislature;9 it should not be
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prohibited by any provision of the Constitution,10 or it should not be hit by any constitutional provision
guaranteeing Fundamental Rights.11 For example, a land tax was held to be confiscatory and so hit by Art.
14 (Equality clause) of the Constitution.12

Where a tax is paid under a mistake of law, or has been collected without the authority of law, the levy and
collection would be contrary to Art. 265. For example, the Ahmedabad Urban Development Authority made
regulations to impose development fee. The Supreme Court ruled that under the relevant Act, the Authority
had no power delegated to it to levy any fees and, therefore, the regulations made by it to impose fees and
the demand therefor were wholly unauthorized and illegal.13

The imposition cannot exceed what the statute authorises. The tax imposed must fall within the four corners
of the law.14 Acquiescence cannot take away from a party the relief he is entitled to in case of contravention
of Art. 265.15

Under Art. 265, not merely the levy but also the collection of the tax must be in accordance with law. A tax
may be validly levied, but if it is not collected according to law, it will amount to infringement of Art. 265. The
statutory procedure to impose the tax liability has to be strictly complied with, otherwise the tax collected
cannot be regarded as being according to law.16

Art. 265 also gives protection against administrative arbitrariness in the matter of tax collection. Arbitrary
assessment of a tax does not amount to collection of tax by authority of law.17

As stated above, a tax may become unauthorized if the relevant taxing provision is declared unconstitutional
for transgressing any constitutional limitation. This may be regarded as an unconstitutional levy.

A tax may also become unauthorized if it is not levied or collected according to the provisions of the relevant
taxing law. This may be regarded as an illegal levy. Art. 265 clearly implies that the procedure for imposing
the liability to pay a tax has to be strictly complied with. Where it is not so complied with, the liability to pay
the tax cannot be said to be according to law.

Since no tax can be collected or levied without the authority of law, the Government has a duty to refund any
sum collected without authority to the person who paid the tax.18 The right conferred by Art. 265 can be
enforced through proper court proceedings.19 If a tax payer is made to pay a tax without the authority of law,
he can file a civil suit to recover the amount.20 He can also invoke the writ jurisdiction of the High Court
under Art. 226 to quash an imposition made without the authority of law, and for refund of any amount
paid.21 The writ jurisdiction of the Supreme Court under Art. 32 can also be invoked if a question of
infringement of a fundamental right arises.22

(b) Position in Britain

In Britain, originally, the legal position was that the money paid voluntarily, that is to say, without compulsion
or extortion or undue influence, or duress, and with a knowledge of all facts, could not be recovered,
although it was paid without consideration.23 Money paid under a mistake of law was not recoverable.24 But
payment made under a mistake of fact was recoverable. In course of time, the courts in Britain sought to
liberalise the law of restitution, and, thus, reduce its inequitable nature by following two paths, viz., : (1) by
characterising 'mistake of law' as 'mistake of fact'; (ii) by giving an expansive meaning to the doctrine of
'coercion' or 'duress'.25 The position has now undergone a change.

An interesting question was raised in Britain in the Woolwich case.26 The Inland Revenue Commissioners
(the Revenue) claimed payment of a sum of money by way of tax from the respondent building society. The
respondent disputed the liability to pay but, nevertheless, paid the amount demanded. Later it was held that
the demand made on the respondent was unlawful. The demand was based on certain regulations which
were subsequently held to be ultra vires by the House of Lords.

The Revenue thereupon paid back the capital sum to the society, but without interest. The respondent
brought an action against the Revenue claiming interest on the sum paid by it. The House of Lords ruled that
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interest was payable by the Revenue to the respondent. The House also ruled that the Revenue was
obligated to refund the amount paid to it under its unlawful demand. The Revenue had asserted that it was
not legally obliged to return the sum of money paid by the respondent and that it did so as a matter of grace.
This claim of the Revenue was overruled by the House of Lords.

The House of Lords has thus expanded the right of the citizen to recover money paid to a public authority
pursuant to an unlawful demand. In the instant case, the House of Lords has recognised the principle that
"the subject who makes a payment in response to an unlawful demand of tax acquires forthwith a prima facie
right in restitution to the payment of the money."27

At another place, Lord Goff has observed referring to a tax or duty paid by a citizen pursuant to an unlawful
demand : "Common justice seems to require that tax to be repaid, unless special circumstances or some
principle of policy require otherwise; prima facie, the taxpayer should be entitled to repayment as of right."

It was made clear that whatever may be the fate of the rule that money paid under mistake of law was not
recoverable that rule does not bar an action based on the unlawful nature of the public demand.

The Law Commission in Britain has now proposed that the rule precluding restitution of payments made
under a mistake of law be abolished.28

(c) Examples of Restitution in India

(1) Govindam

An example of a simple case of restitution is furnished by State of Kerala v. K.P. Govindam Exporter .29
Under the Kerala Tapioca Manufacturer and Export (Control) Order, 1966, no person could export tapioca
except in accordance with a permit. The State Government started levying administrative surcharge for
issuing such a permit. The levy and realisation of the surcharge were without the authority of any law.

The petitioner through a writ petition challenged the validity of the levy of the surcharge and also claimed
refund of the amounts realised by the State from him. The State Government contended that the surcharge
was in effect and substance a license fee charged in exercise of the police powers of the State for permitting
the appellants by grant of permits to export tapioca. The Supreme Court ruled that the levy in question was
not justified by any statutory rule and, therefore, the levy was bad and the realisations without any authority
of law. No license fee or fee for the grant of permits was imposed under the Control Order. The Court
therefore ordered refund of money collected by the Government from the petitioner by way of administrative
surcharge.

(2) Ram Chandra

In Ram Chandra Kailash Kumar & Co. v. State of Uttar Pradesh, 30 the market committee (a statutory body)
was ordered to refund the market fee realised by it contrary to law. In Motilal Padampat, 31 the Supreme
Court ordered the Government to refund the tax money which it was not entitled to charge. In Great Eastern
Shipping Co. Ltd. v. Union of India, 32 the petitioner was made to pay enhanced port dues under a
notification issued under the Ports Act, 1908. The Delhi High Court held the notification ultra vires the Act.
The Court ordered the refund of excess amount of port dues paid by the petitioner under the notification.33

(3) Auriaya

The Chamber paid sales tax on forward contracts for several years since 1949-50. In 1954, the Supreme
Court declared the statutory provision levying sales tax on forward contracts as unconstitutional. Thereafter,
the Chamber applied to the sales tax authorities for refund of the tax paid by it and the same was granted.

The question was raised whether in a case where assessment order was void, but the same was not set
aside, can the sales tax authorities grant refund of the tax assessed thereunder without the need to bring a
suit in a civil court for the purpose. The Supreme Court answered the question in the affirmative in Sales
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Tax Commissioner, U.P. v. Auriaya Chamber of Commerce .34 The Court emphasized that as we are living
in a democratic society governed by rule of law, every government which claims to be inspired by ethical and
moral values must do what is fair and just to the citizen. If either mistake of law or of fact is established, the
assessee is entitled to recover the money and the Government receiving it is bound to return it.

The Court ruled that the sales tax authorities could direct a refund because money was being illegally
retained by the Revenue. The assessment order and the realisation of the money was based on the ultra
vires provisions of the Act and the State had no right to that money. The assessment order being void, the
sales tax authorities could have ordered refund of the money without setting aside the assessment order. On
the question of absence of any specific provision prescribing procedure for applying for the refund, the Court
observed :35

"But the rules or procedures are handmaids of justice not its mistress. It is apparent in the scheme of the Act that sales
tax is leviable only on valid transaction. If excess amount is realised, refund is also contemplated by the scheme of the
Act . . . Where indubitably there is in the dealer legal title to get the money refunded and where the dealer is not guilty
of any laches, and where there is no specific prohibition against refund, one should not get entangled in the cobwebs of
procedures but do substantive justice."

In the instant case, tax was imposed without authority of law as contemplated by Art. 265, and, therefore,
from the beginning the realisation was illegal and a refund was embedded in the fact of payment.

(4) Johnson

In Johnson 36 the municipality levied a tax on clay imported by the respondents at a rate higher than
warranted by law. The Supreme Court held the levy to be unjustified and ordered refund of the excess duty
paid by the respondents.

A notification exempted sugar mills producing sugar in excess during the period of May 1, 1982 to
September 30, 1982 from payment of excise duty. The question was whether the factories which had already
paid the duty before the issue of the notification were entitled to set refund of the duty paid by them.
Answering in the affirmative, the Supreme Court observed :37
"When notification granted exemption to such factories which produced in excess of average production and such
assesse if otherwise is entitled for such exemption, it cannot be defeated merely on the ground that such factory has
already paid the duty for the period in question. Even if duty is paid under ignorance of law or otherwise, if by
subsequent legislation or valid notifications the obligation to pay the duty is withdrawn, it cannot be refused since he
has already paid the duty. If the duty paid is shown to be not leviable or entitled for rebate, the Revenue has to refund,
adjust, credit such amount to the assesses, as the case may be'.

(5) Polution Control

Water cess collected from the sugar mills when they were not liable to pay under the law was held to be
refundable as the cess was collected illegally and without the authority of law.38

All the above cases relate restitution to the public law doctrine of ultra vires. As no charge can be levied by
the Administration without the authority of law, as stipulated by Art. 265, so any payment in response to an
unlawful official demand ought to be refunded unless there is a very good reason to the contrary.39

2. S. 72 OF THE INDIAN CONTRACT ACT

Besides the broad principle of ultra vires for claiming restitution, as stated above, a narrower principle for
restitution is to be found in S. 72 of the Contract Act. This provision runs as follows :

"A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it."
 1391
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Under S. 72, the only two circumstances under which a party is entitled to recover the money back are :

(i) money has been paid by mistake; or

(ii) it has been paid under coercion.

S. 72 casts a duty upon a person to repay that money which is paid to him by mistake or under coercion. S.
72 makes no distinction between a mistake of law or mistake of fact. The term 'mistake' has been used in S.
72 without any qualification or limitation whatever, and comprises within its scope both kinds of mistakes--a
mistake of law as well as a mistake of fact.40

(1) Budh Prakash

The Supreme Court has held in Budh Prakash 41 that when the payment of tax by the tax-payer is made
under a mistake of law, and realisation thereof by the revenue authorities is under a mistake, such sum
should be refunded. In S.T.O. v. Kanhaiya Lal Mukund Lal Saraf, 42 the Supreme Court ruled that the word
'mistake' in S. 72 "is wide enough to cover not only a mistake of fact, but also a mistake of law." The Court
has gone on to say :43
". . . the true principle enunciated is that if one party under a mistake of fact or law, pays to another party money which
is not due by contract or otherwise that money must be repaid. The mistake lies in thinking that the money paid was
due when in fact it was not due and that mistake, if established, entitles the party paying the money to recover it back
from the party receiving the same."

In the instant case, the respondents dealing in bullion gold and silver ornaments and forward contracts in
silver bullion paid sales tax on its forward transactions for three years 1948-49, 1949-50 and 1950-51, after
assessment orders were made. Subsequently, on 27/2/1952, in a case filed by another party, the levy of
sales tax on forward transactions was held to be ultra vires by the High Court as well as the Supreme Court.
The respondents then claimed back the amount paid by them basing their claim on this case. The sale tax
authorities rejected the request. Thereafter, the respondents filed a writ petition in the High Court.

The High Court ordered the State to refund the amount. On appeal, the Supreme Court upheld the High
Court decision. The Supreme Court ruled that if it is once established that the payment, even though it be a
tax, has been made by the party labouring under a mistake of law, the party is entitled to recover the same
and the party receiving the same is bound to repay or return it. No distinction can be made in respect of a tax
liability and any other liability on a plain reading of S. 72 of the Contract Act. The fact that both parties, the
State as well as the taxpayer, were labouring under a mistake of law and the taxpayer made the payments
voluntarily would not disentitle him from receiving the said amounts, and the State was bound to return the
same without the consideration whether the moneys had been paid voluntarily. There was nothing in the
circumstances of the instant case to raise any estoppel against the respondent.44

If, on the other hand, neither mistake of law nor of fact is established, the party may rely upon the fact of
monies having been paid under coercion in order to entitle him to the relief claimed and then it becomes
relevant to consider whether the payment has been a voluntary payment or a payment under coercion.

In a number of cases, the Supreme Court has ruled that payment towards tax or duty which is without the
authority of law is payment made under mistake within the meaning of S. 72 of the Contract Act. When a tax
law is declared to be unconstitutional, the tax already paid under the law is to be regarded as payment made
under mistake of law within S. 72, Contract Act, and so the Government to whom payment has been made
by mistake must in law repay it.45

(2) Aluminium Industries

S. 72 is based on equitable principles. Therefore, by claiming to retain the tax which has been collected
without the authority of law, the Government cannot enrich itself and it is liable to make restitution to the
person who had made payment under mistake or under coercion. For example, in State of Kerala v.
Aluminium Industries, 46 the assessee paid certain amounts as sales tax. Later the assesses filed a writ
petition claiming refund on the ground of exemption from sales tax under Art. 286(I)(a). The assessee argued
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that at the time he paid the tax he did not know that the transactions in question were not exigible to sales
tax and he discovered his mistake only after making the payment. The State opposed the assessee's claim
for refund on the ground inter alia that he paid the tax voluntarily.

Following Kanhaiya Lal, the Supreme Court ordered refund. The Court said that "money paid under a
mistake of law falls within the word 'mistake' in Section 72 of the Contract Act . . ." In such a case where tax
is levied by mistake of law "it is ordinarily the duty of the State subject to any provision in the law relating to
sales tax . . . to refund the tax . . . If refund is not made, remedy through court is open . . ." There can be no
question of estoppel when the mistake of law is common to both parties.

(3) D.R. Mills

Commenting on S. 72 Contract Act, the Supreme Court has observed in D.R. Mills v. Commissioner, Civil
Supplies, 47 that for purposes of S. 72, the mistake is material only as far as it leads to the payment being
made without consideration. The true principle is that if one party under a mistake of law pays to another
money which is not due by contract or otherwise that is to be repaid. However, a contract entered into under
a mistake of law of both parties falls under Sec. 21 of the Contract Act and not S. 72. If a mistake of law had
led to the formation of a contract, S. 21 enacts that that contract is not for that reason voidable. If money is
paid under that contract, it cannot be said that the money was paid under mistake of law; it was paid
because it was due under a valid contract; and if it had not been paid, payment thereof could have been
enforced.48

(4) Sri Ram

The respondents paid terminal tax to the municipality. Later, the law under which terminal tax was being
charged by the municipality was held to be invalid. The Supreme Court ruled in Nagar Mahapalika, Kanpur
v. Sri Ram Mahadeo Prasad 49 that, under S. 72, Contract Act, the terminal tax having been paid under
mistake of law, the Municipality was bound to refund the tax collected.

Under S. 72, a party is entitled to restitution if he pays under 'coercion'. In Britain, the courts have given a
broad significance to the term 'coercion'. No payment is regarded as 'voluntary' if, in fact, it has been made to
secure the performance of some duty or service sought by the tax payer, e.g. grant of a licence or a
permission.50 When the assessee pays what has been assessed by the taxing authority as payable by him,
such a payment cannot be treated as voluntary payment by him.51 The reason is that in such a case, the tax
payer is faced with tax authorities armed with the coercive power of the State.

Theoretically, the principle of restitution is very well established either on the basis of ultra vires, or, under S.
72 of the Contract Act. However, in practice, restitution may not be easy. No government or public body likes
to pay back the money once it reaches its coffers even though the government may not be lawfully entitled to
it. Therefore, these bodies raise all kinds of objections to the demand for refund of the illegally collected
money. At times, even statutory provisions may be made to put road blocks in the way of restitution.52

(5) Hyman

To depict the obstructionist attitude of public bodies to the question of refund, reference may be made to
Madras Port Trust v. Hyman Shu International .53 The respondent claimed refund of a sum of money paid to
the appellant as wharfage and demurrage charges. The High Court decreed the amount but the Port Trust
sought special leave of the Supreme Court to appeal under Art. 13654 from the High Court's decision.
Refusing to grant leave to appeal, the Supreme Court observed that the respondent's claim was just and well
founded. Deprecating the attitude of the Port Trust in opposing the claim of the respondent, the Court said :
". . . it is unfortunate that a public authority like the Port Trust should, in all morality and justice take up such a plea (of
limitation) to defeat a just claim of the citizen. It is high time that governments and public authorities adopt the practice
of not relying upon technical pleas for the purpose of defeating legitimate claims of citizens and do what is fair and just
to the citizens."

To begin with, the courts adopted a legalistic approach and took a liberal attitude towards the question of
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restitution. The judicial attitude was that if money has been illegally collected by the State or a public body, it
must refund the same to the person from whom it has been collected. The best example of this attitude is
furnished by Kanhaiya Lal, 55 where the Supreme Court placed the right to claim restitution for tax money
paid under mistake of law on a very liberal footing. This is evidenced by the following features of this case :

(i) Tax was paid during 1948-1951. The writ petition challenging the tax was filed in 1956, a few
years after the payment of the tax in question.
(ii) The Supreme Court observed that, as far as S. 72 of the Contract Act was concerned,
"equitable considerations . . . could scarcely be imported when there is a clear and
unambiguous provision of law which entitles the plaintiff to the relief claimed by him."
(iii) The Court also observed that the fact that the State had not retained the money paid by the
respondent but had spent the same away in the ordinary course of state business would not
make any difference to the position and that the respondent was entitled to recover back the
monies paid by it under a mistake of law under the plain terms of S. 72, Contract Act.

It is clear from the above that in Kanhaiya Lal, the Supreme Court adopted a purely legalistic approach to
the question of restitution and eschewed all extra-legal considerations to deny the same.

But, then, with the passage of time, the judicial trend started undergoing a change. The Supreme Court
swayed increasingly from legalistic to policy considerations and, thus, started putting hinderances in the way
of restitution. The main consideration before the courts now seems to be as to how to protect government
treasury against demands for restitution. As will be seen below, the apogee in this judicial approach has
been reached recently in the Supreme Court decision in Mafat Lal 56 in which the Supreme Court has
expressly disagreed with its own earlier approach in Kanhaiyalal57 as stated above.

3. UNJUST ENRICHMENT

To begin with, as stated above, the judicial attitude towards restitution was simply legalistic. This becomes
clear from the following observation made by MATHEW, J., in D. Cawasji & Co. v. State of Mysore :58

"Nor is there any provision under which the Court could deny refund of tax even if the person who paid it has collected
it from his customers and has no subsisting liability or intention to refund it to them, or, for any reason, it is
impracticable to do so."

But as the following discussion would show, in course of time, the courts have come to regard such a result
as irrational and unjust and, therefore, have shed their legalistic approach and sought to move towards a
policy-oriented approach in order to curb the right to claim restitution in certain circumstances.

In course of time, the courts in India have developed the doctrine of unlawful enrichment to somewhat dilute
the principle of restitution. The doctrine of unlawful enrichment has been evolved as an exception, or, as a
counter to the principle of restitution. The rationale behind the doctrine of unlawful enrichment can be
explained as follows.

Taxes are of two kinds. One kind of tax, such as income tax, is paid by the taxpayer and the incidence of
such tax falls on the taxpayer personally; he can neither pass on the burden of such tax to, nor recoup the
same from, any third person. On the other hand, there are taxes, such as, sales tax, customs and excise
duties, which the taxpayer pays to the State, but he can pass on the incidence of such a tax to, and recoup
himself the tax amount paid from, the third party. Thus, the ultimate burden of the tax falls not on the
taxpayer who pays the tax in the first instance, but on some one else. For instance, an excise duty is a levy
on production of goods. The excise is payable in the first instance by the person who produces excisable
goods, but he can add the excise duty paid by him to the cost of the goods and sell the same at that price.
The producer thus recoups the excise duty paid by him in the first instance, and the ultimate incidence of the
excise duty falls on the consumer of such goods.
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The doctrine of unjust enrichment applies to the second category of taxes mentioned above. The doctrine
envisages that when the State collects a tax from a taxpayer without the authority of law, but if the taxpayer
has already passed on the burden of the tax money paid by him to the State to someone else, and has thus
recouped the tax money, then the taxpayer is not entitled to ask for the restitution from the State of the
money paid by him as the unauthorized tax. In such a circumstance, the State cannot be asked to refund the
tax money to the taxpayer because of the principle of unjust enrichment. The court may refuse relief to the
concerned taxpayer in such a situation on the ground that he will be doubly benefited. In case of an illegal
levy by the State, the refund of the same ought to be made to the person who had ultimately paid the amount
and not to the intermediary who collected the amount from them and paid the same to the government. But
the court may evolve a scheme, according to the facts and circumstances of each case, of benefiting those
who have ultimately born the burden of such an unauthorised tax. A few examples are cited below to
illustrate the point.

(1) Nawabganj

In Nawabganj Sugar Mills, 59 the State Government reduced the price of levy sugar. The sugar mill owners
challenged the validity of the order. The High Court granted stay of the order on the condition that the mill
owners should give guarantees for the excess price that they would recover because of the stay order. The
mill owners thereafter sold sugar in the free market at a price higher than that fixed by the government.
Ultimately, the High Court upheld the government order and directed the Registrar to encash the bank
guarantees and pay the amount to the State Government which was directed to keep the amount in a
separate account and refund the money to those persons who had purchased sugar at the higher price. On
appeal by the mill owners against the High Court order, the Supreme Court confirmed the High Court order,
but evolved its own scheme for refunding the amount to the ultimate consumers. The Court observed that the
money charged in excess should go to the consumers who had ultimately paid the same. A procedure was
devised by the Court to restore what had been "nibbled from the numerous buyers" by charging higher price
of sugar.60

(2) Shiv Shankar

In Shiv Shankar Dal Mills, 61 the petitioner-dealers in various goods paid market fees to the market
committee at the increased rate of 3% instead of the original rate of 2%. The Supreme Court declared the
increase of 1% as ultra vires. To the demand of the traders for refund of the excess market fee collected
from them, the Supreme Court ruled that though refund of the fee so collected might be legally due to the
traders, they would be paid amounts only to the extent they had not passed on the burden to their
customers. To the extent they had passed on, they were not entitled to the refund and the amount was
payable to the ultimate consumers to whom the dealers had passed on the incidence of the enhanced
market fee.

The Court devised a scheme to enable the market committee to refund the amounts to those from whom the
illegal collections had been made by the traders. The Court derived this principle from two sources : (i) the
concept of distributive justice underlying the Directive Principles contained in Arts. 38 and 39 of the Indian
Constitution;62 and (ii) the discretionary nature of the jurisdiction conferred on the High Courts by Art. 226,
and the power of the High Court thereunder to mould relief.63 The Court observed in this connection :
"In our jurisdiction, social justice is a pervasive presence; and so, save in special situations it is fair to be guided by the
strategy of equity by making those who claim the service of the judicial process to embrace the basic rule of distributive
justice, while moulding the relief, by consenting to restore little sums, taken in little transactions, from little persons, to
whom they belong."

(3) Electricity Board

In U.P. State Electricity Board, Lucknow v. City Board, Mussoorie, 64 the issue related to the validity of the
levy of 71/2% as an additional charge made by the electricity board and the city board claimed refund of the
additional charge. On the question of refund, the Supreme Court observed :65
". . . it (city board) has not stated that it had not collected charges from the consumers of electricity energy supplied by
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it at the rates which would cover the additional 7-1/2%. The learned counsel for the city board was not able to state that
the city board had not recouped itself by collecting the charges from the consumers. In this situation, we have to
presume that the city board had not suffered any loss by levy of 7-1/2% by way of additional charges. We are of the
view that in cases of this nature where there is little or no possibility of refunding the excess amount collected from the
ultimate consumer to him and the granting of relief to the petitioner would result in his unjust enrichment, the Court
should not ordinarily direct any refund in exercise of its discretion under Art. 226 of the Constitution."

(4) Vyankatlal

In Vyankatlal, 66 the plaintiff sugar mills paid Rs. 50,000/- under protest to the Sugar Fund created by the
Government of Madhya Bharat under a statutory notification. In a suit by the Mills, the High Court declared
the levy to be illegal as being beyond the legislative competence of the State. The question for the
consideration of the Supreme Court was whether an order for refund of Rs. 50,000/- ought to be made in
favour of the plaintiff mills. Refusing to order restitution, the Court pointed out that, in the instant case, the
plaintiffs had not to pay the amount from their own coffers. They transferred the burden of paying the amount
in question to the purchasers. Therefore, the plaintiffs were not entitled to get the refund as to do so would
virtually amount to allowing unjust enrichment as the plaintiffs had not eventually paid the amount towards
the Fund, and there was thus no question of refunding the amount to the mills. Only the persons on whom
lay the ultimate burden to pay the amount would be entitled to get the refund of the same. The amount
deposited in the Fund was to be utilized for the development of sugarcane. If it was not possible to identify
the persons on whom the burden for payment had ultimately been placed, the amount in the Fund could be
utilized by the government for the purpose for which the Fund was created, viz., development of sugarcane.
The Court observed in this connection :
"There is no question of refunding the amount to the respondents (e.g. the sugar mills) who had not eventually paid the
amount towards the Fund. Doing so would virtually amount to allow the respondents unjust enrichment."

(5) Ayurved Pharmacy

In the State of Tamil Nadu, while the patent or proprietary medicinal preparations belonging to the different
systems of medicines were taxed at 7% only, a few specific ayurvedic medicines were subjected to a sales
tax of 30%. The Supreme Court held this higher rate of sales tax on certain specific medicines as
discriminatory in Ayurveda Pharmacy v. State of Tamil Nadu .67 The Court ruled that there was no rational
basis for charging higher sales tax on these preparations and, accordingly, was hit by Art. 14 of the
Constitution. As the sales tax had been charged from the customers of these medicines, the Court ordered
the refund of the excess sales tax paid on these preparations to the appellant manufacturer on the condition
that on obtaining such refund, the manufacturer would, within one month thereof, serve notice on the
customers from whom such excess was recovered to obtain a refund from the appellant of such
corresponding excess. If any balance of the excess remained unrefunded by the appellant to the customers
upon the expiry of three months from the notice, the balance was to be paid over by the appellant to the Arya
Vaidya Rama Varier Educational Foundation of Ayurveda. So, the appellant manufacturer would not benefit
in any way from the refund.

(6) Telco

In Telco 68 the company paid to the municipality octroi duty on goods imported within the municipal area.
But as the goods were exported by the company and not consumed within the octroi area, the Court directed
the municipality to refund the money collected as octroi duty to the company. The Court ruled that when the
goods in respect of which octroi has been paid are exported, then the octroi becomes refundable.

In the instant case, the Municipality raised the argument that Telco was not entitled to get the refund as it
had already recovered the amounts paid by it as octroi duty from its customers to whom the goods were sold
by the Company. The Court rejected the plea of unlawful enrichment of the company raised by the
municipality as there was no evidence that the company had passed the octroi duty to the consumers and
recouped itself. The Court ruled that there was no evidence to show that any of the articles sold by the
company was subject to any price control by the government, or that the company charged any octroi
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separately in the bills. Invoices made to outside purchasers did not show that any octroi was separately
charged or collected by the company. The company had denied charging any octroi duty from those to whom
the goods were sold. Thus, no unlawful enrichment arose by refund of the octroi duty to the company who
paid the octroi duty.

(7) Roplas

In Roplas, 69 the petitioners who were engaged in the manufacture of fibreglass reinforced plastic bodies for
motor vehicles paid excise duty on their product. Later, in another case, the High Court decided that no such
duty was payable. Roplas claimed refund of the duty paid by them. But, the petitioners did concede that they
had recovered the duty from their customers. The Court ruled that although the petitioners paid the duty
under a mistake of law, they were not entitled to the refund as they had recovered the whole of the duty from
their customers. They were not entitled to claim refund under S. 72 of the Contract Act. "Their claim for such
refund amounts to a fraud on consumers, and the society. Any indulgence in their favour will amount to
helping them to enrich themselves unjustly." In all cases, such as the present, it was not the manufacturer
who actually paid the amount; ultimately it was the ultimate consumer who bore the brunt of such taxation.

(8) New India

In New India Industries Ltd., v. Union of India, 70 the Bombay High Court rejected the argument of the
respondent that in all cases where order of tax refund to assessee may involve his unjust enrichment, the
State ought to be allowed to retain the amount which is refundable, and the State itself ought to be left with
the choice of how to benefit those who had borne the burden. The Court observed in this connection :
"Having collected tax without the authority of law, the State cannot have any preferential claim to decide how the
amount of tax which is refundable shall be spent. According to the facts and circumstances of each case, the writ Court
would decide whether it is the State or the assessee or any third agency who ought to be entrusted with the duty of
extending the benefit of tax refund to those who had ultimately borne the burden."71

(9) H.M.M.

H.M.M.Ltd. v. Administrator, Bangalore City Corporation 72 pertained to the levy of octroi on goods on their
entry into the city limits. Octroi had been collected on the goods even though there was no use or
consumption within the municipal limits. The Supreme Court ruled that the amount of octroi paid was
refundable. The Court did not accept the contention that refund ought not to be given as there was a
possibility of undue enrichment of the claimant. The Court ruled that octroi being a duty on the entry of raw
material which was payable by the producer or manufacturer. It was not a duty on going out of the finished
products in respect of which the duty might have been charged or added to the costs passed on to the
consumers. The Court then concluded that "in such a situation, no question of "undue enrichment" can
possibly arise in this case."

The question is further discussed below under "Statutory Provisions"73 and later under the heading
"Moulding Relief in Writ Petitions".74

(10) Mafatlal

The Supreme Court has now definitively reiterated in Mafatlal 75 that the doctrine of unjust enrichment
applies in all cases of claims for restitution be it made under Art. 265 of the Constitution, or S. 72, Contract
Act, or be it made through a suit, or before taxing authorities, or through a writ petition, or whether the tax
collected is unconstitutional or illegal. Refund of tax is possible only subject to the doctrine of unjust
enrichment. No refund can be granted so as to cause windfall gain to any person when he has not suffered
the burden of tax. The right to restitution, whether it be treated as a constitutional right flowing from Art. 265,
or a statutory right arising from S. 72, Contract Act, "is neither automatic nor unconditional".76

In support of the doctrine of unjust enrichment, the Court has invoked the concept of economic justice
contained in the Directive Principles of State Policy, especially, Arts. 38 and 39 of the Constitution. The Court
has explained that the very concept of economic justice means and demands that unless the claimant for
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refund establishes that he had not passed on the burden of the duty or tax to others, he has no just claim for
refund. The Court has observed :77
"It would be a parody of economic justice to refund the duty to a claimant who has already collected the same amount
from his buyers. The refund should really be made to the persons who have actually borne its burden--that would be
economic justice. Conferring an unwarranted and unmerited monetary benefit upon an individual is the very antithesis
of the concept of economic justice and the principles underlying Arts. 38 and 39."

Thun, when a person claims under Art. 265, refund of a tax paid under an unconstitutional provision, the right
to refund does not follow automatically. Art. 265 ought to be read not in isolation, but in the light of the
concepts of social justice envisaged in the Preamble to the Constitution and the Directive Principles
adumbrated in Arts. 38 and 39.

At another place, the Court has observed that refunding the tax to one who has already recouped himself by
passing the burden to others, will not be 'economic justice' but very 'negation of justice.' By doing so, the
State would be conferring an unearned and unjustifiable windfall on the assessee "thereby contributing to
concentration of wealth in a small class of persons which may not be consistent with the common good." The
Court has observed further :
"The Preamble and the aforesaid Articles (viz. 38 and 39) do demand that when a duty cannot be refunded to the real
persons who have borne the burden, for one reason or the other reason, it is but appropriate that the said amounts are
retained by the State for being used for public good."

As regards S. 72, Contract Act, the Court has observed :

" Section 72 contains a rule of equity and once it is a rule of equity, it necessarily follows that equitable considerations
are relevant in applying the said rule."

The very basis of claim, though statutorily incorporated in S. 72 of the Contract Act, is equitable in nature. If
an assessee has passed on the tax burden to a third party, and has himself sustained no loss, refunding the
tax money to him will result in a windfall to him. He will be unjustly enriched. This factor disentitles him from
claiming restitution.

Thus, whether the right to refund of taxes paid under an unconstitutional provision of law is treated as a
constitutional right flowing from Art. 265, or as a statutory right/equitable right affirmed by S. 72 of the
Contract Act, "the result is the same--there is no automatic or unconditional right to refund."78 His refund
claim shall be allowed only when he establishes that he has not passed on the burden of duty to another
person/other persons.

JEEVAN REDDY J. delivering the majority judgment has justified the doctrine of unjust enrichment as follows
:
"The doctrine of unjust enrichment is a just and salutary doctrine. No person can seek to collect the duty from both
ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the
state on the ground that it has been collected from him contrary to law. The power of the court is not meant to be
exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to the state. State
represents the people of the country. No one can speak of the people being unjustly enriched."79

(11) Kanhaiya Lal

In Kanhaiya Lal, 80 the Supreme Court had observed that equitable considerations had no place in S. 72
because in view of the clear and unambiguous language of S. 72, "equitable principles cannot be
imported."81 But, differing from this view, the Supreme Court has now ruled in Mafatlal that " Section 72 is a
rule of equity" and so "equitable considerations cannot be held to be irrelevant where a claim for refund is
made under Section 72." "What these equitable considerations should be is not a matter of law. That
depends upon the facts of each case."
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The Court refers to the doctrine of unjust enrichment as one of the equitable considerations relevant to S. 72,
i.e., the person claiming the refund has passed on the burden to others and has, thus, not really suffered any
prejudice or loss. "If so, there is no question of reimbursing him. He cannot be recompensated for what he
has not lost."82 Similarly, in Mafatlal, the Court takes objection to the earlier statement made by it in
Kanhaiyalal with reference to S. 72 that the defence by the State of spending away the amount of tax
collected under an unconstitutional law is not a good defence to a claim for refund. The Court has said now
that this statement is subject to one rider, viz. "where the petitioner-plaintiff alleges and establishes that he
has not passed on the burden of the duty to others, his claim for refund may not be refused." The Court goes
on to observe on this point :
"In other words, if he is not able to allege and establish that he has not passed on the burden to others, his claim for
refund will be rejected whether such a claim is made in a suit or a writ petition. It is a case of balancing public interest
vis-a-vis private interest."

(12) Digvijaya

In case the money cannot be refunded to the very people who bore the burden thereof, it would be better if
the monies continue to be with the State and available for public purposes.

Cl. 9A of the Cement Control Order imposed a levy of Rs. 9 per ton on a manufacturer for production of
non-levy sugar. The clause was declared ultra vires the Industries (D & R) Act. A cement manufacturer then
claimed refund of the money paid by him in pursuance of cl. 9A. His claim was rejected by the Supreme
Court in Digvijaya 83 following its earlier ruling in Mafatlal . The Court observed :
"There is no automatic right of refund. The principles of unjust enrichment are applicable in the claim of refund. The
claimant has to allege and establish that he has not passed on the burden to another person Where the burden of duty
has been passed on, the claimant cannot say that he has suffered any loss or prejudice. Real loss or prejudice is
suffered in such a case by the person who has ultimately borne the burden and it is only that person who can
legitimately claim its refund. But such person does not come forward or where it is not possible to refund the amount to
him for one or the other reason, it is just and appropriate that the amount is retained by the State, i.e. by the people."

The Court has characterised the doctrine of unjust enrichment as "a just and salutary doctrine". The Court
would not use its power for unjustly enriching a person.

The Court also stated that the doctrine of unjust enrichment is not applicable to the state for the state
represents the people of the country. "No one can speak of the people being unjustly enriched."84

The principle is thus well established that in case of an illegal levy by the state, the refund of the amount
collected is to be made to the actual person who has ultimately paid the amount, and not to the intermediary
who collected the amount from them and paid it to the government.

4. STATUTORY PROVISIONS

At times, a tax statute may itself contain a provision regulating refund of any tax paid in excess of the amount
due. As no government really wants to refund the amount once it has reached its coffers, these statutory
provisions are not designed to facilitate, but to create hurdles and roadblocks in the way of restitution.
Accordingly, such provisions impose restrictions on refund, e.g., the provision may fix a period of limitation
within which to apply for refund; it may lay down a procedure which ought to be followed by one seeking
refund or it may prescribe the authority to whom to apply for the purpose or may give statutory form to the
doctrine of unjust enrichment. In such a case, the court may order refund if it is permissible within the
statutory provision in question.85

At times, the constitutional validity of such a provision may be questioned. By and large, the courts have
upheld the validity of such provisions. The courts have ruled that it is not incompetent for the legislature to
enact a law depriving the assessee of his right to obtain refund of tax, duty or fee collected from him without
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the authority of law when he had already realized the said amount from others. This is to statutorily enforce
the doctrine of unjust enrichment. The courts have upheld the constitutional validity of such a provision. A
few examples of such statutory provisions, and the courts' response thereto, are given below.

(1) Orient Paper

A provision in the State Sales Tax Act provided that : ". . . where any amount is . . . paid as tax by a dealer
and where such amount is not payable by the dealer," a refund of such amount "can be claimed only by the
person from whom such dealer has actually realised such amount by way of sales tax . . ." The provision
thus deprived the assessee of his common law right to claim refund of the amount paid as tax under an error
of law and provided that it would be claimable only by the person from whom the dealer had actually realised
the amount by way of sales tax.

The statutory stratagem was adopted by the State so as to refund as little as possible as small consumers
were hardly expected to bother to claim small amounts paid by them as sales tax.

In Orient Paper Mills v. State of Orissa86 the Supreme Court ruled that the provision in question was not bad
under Art. 19(1)(f)(1)(f) of the Constitution as it was in the interest of the general public. The provision was
also held covered by the incidental and ancillary power relating to levy and collection of Sales Tax. The Court
pointed out that the Sales Tax Act authorised the registered dealers to collect sales tax from the purchasers
which they had to pay on their turnover. The amounts so collected by the assessees therefore primarily
belonged not to the assessees but to the purchasers. So, the Court observed :87

"If with a view to prevent the assessees who had no beneficial interest in those amounts from making a profit out of the
tax collected, the Legislature enacted that the amount so deposited shall be claimable only by the persons who had
paid the amounts to the dealer and not by the dealer, it must be held that the restriction on the right of the assessees to
obtain refund was lawfully circumscribed in the interest of the general public."

(2) Abdul Qader

In R. Abdul Qader & Co. v. S.T.O.88 a State law authorised the Government to recover from any person any
amount collected by him as sales tax otherwise than under the relevant law. The Court declared the law to
be invalid on the ground that the State could levy sales tax, but any other collection without the authority of
law could not be regard as sales tax and so the State could not recover the same. Such a law could not fall
within the "incidental or ancillary" powers as these can be exercised only in aid of the main topic of
legislation, i.e. sales tax.89

A provision in the State Sales Tax Act provided that if the prescribed authority had reason to believe that any
dealer had collected any amount as sales tax when he was not liable to pay such a tax, the authority can
order the dealer to deposit the amount with the government. The provision thus authorised the government
to recover from any person any amount collected by him as sales tax otherwise than under the relevant law.
The Supreme Court ruled that the provision was not valid as the State could levy sales tax, but any other
collection without the authority of law could not be regarded as sales tax and such a law would be beyond
the competence of the State Legislature under entry 54, List II,90 and so the State could not recover the
same. Such a law would not fall under the topic of sales tax on which the State Legislature was authorised to
make law.91

(3) Ajit Mills

On the other hand, a law was enacted by a State Legislature prohibiting collection of sales tax by any one on
sale of goods on which no sales tax was payable under the law. Unauthorised collection was made
punishable with fine and imprisonment and, above all, any unauthorised collection was to be forfeited to the
State. The constitutionability of this provision was challenged, but the Court upheld the same The Court held
the forfeiture clause valid in R.S. Joshi v. Ajit Mills92 as imposing a penalty for breach of the sales tax law
which fell within the scope of entry 54, List II. The earlier cases were distinguished on the ground that there
the Legislature had sought to grab the money even though not exigible under the law while in the instant
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case a penalty was imposed for infringing the sales tax law. As a "punitive measure to protect public interest
in the enforcement of the final legislation, it falls squarely within the area of implied power." The Court said in
this connection :
"In our view, the true key to constitutional construction is to view the equity of the statute and sense the social mission
of the law, language permitting, against the triune facets of justice highlighted in the Preamble to the Paramount
Parchment, read with a spacious signification of the listed entries concerned".

The underlying idea of the provision challenged in Joshi was that a dealer collecting tax outside the law
should not stand to benefit thereby. In such a situation, the most equitable solution could be to return the
money to those, who had paid it, but it may not be feasible to return small amounts to numerous people. The
next best solution could be to make the State as the beneficiary, but the State could not collect any tax under
an unconstitutional law because of the restriction imposed by Art. 265. So, a way was found to achieve the
same result, viz., to forfeit the money which is conceptually a penal sanction for the enforcement of the law
and is different from collecting tax money. Imposing a sanction for the enforcement of the Sales Tax Law
would fall within the scope of entry 54, List II, as an ancillary matter. Thus, a change in phraseology and
concept enabled the State to achieve the same result which it failed to achieve otherwise.

(4) Amar Nath

In Amar Nath,93 a case arising with regard to market fee collected by the market committee, the appellants
were traders in agricultural products. They challenged S. 23A of the Punjab Agricultural Produce Markets Act
which directed that those dealers who had already passed on the burden of the excess market fee (which
had been held to be invalid by the court) would not be entitled to recover the same. While upholding the
validity of S. 23A, the Court observed that all that this provision did was to prevent refund of the excess fee
to the dealers who had already passed on the burden thereof to the next purchasers and so had reimbursed
themselves and who wanted to unjustly enrich themselves by obtaining refund. The Court held that the
provision in question recognised that the consumer public who had borne the ultimate burden were the
persons really entitled to refund and since the market committee represented their interests, it was entitled to
retain the amount. The Court pointed out that the provision for retention by market committee had to be
made because of the practical impossibility of tracing the individual purchasers and consumers who had
ultimately borne the burden. The Court observed that it was :
"really a law returning to the public what it has taken from the public, by enabling the committee to utilise the amount for
the performance of services required of it under the Act. Instead of allowing middlemen to profiteer by ill-gotten gains,
the Legislature has devised a procedure to undo the wrong item that has been done by the excessive levy by allowing
the committees to retain the amount to be utilised hereafter for the benefit of the very persons for whose benefit the
marketing legislation was enacted."

The Court pointed out that the impugned S. 23A was akin to the provision involved in Orient Paper Mills94
which also disabled a dealer from claiming a refund of the fee paid by him, in case he had already passed on
the burden to the next purchaser.

(5) Dattatraya

A statutory provision in the Municipal Act said that "no suit shall be instituted against the corporation" "in
respect of any act done or purported to be done in pursuance or execution or intended execution of this Act",
"unless it is commenced within six months next after accrual of the cause of action." When a suit was filed to
recover a tax paid to the municipality which it was not authorised to collect, the Supreme Court ruled in
Poona Municipality v. Dattatraya95 that since the levy was unauthorised, it could not be regarded as being in
pursuance or execution of the Act. Further, in the relevant Act, a provision said that the municipality would
not be authorised to levy any tax which the State Legislature was not competent to levy under the
Constitution. Therefore, the levy in question could not be said to be "purported to be done in pursuance or
execution or intended execution of the Act." For, what was plainly prohibited by the Act could not be claimed
to be purported to be done in pursuance or intended execution of the Act. The suit was thus held not barred
by limitation.96
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(a) ITC

S. 11B of the Central Excise Act provides that any person claiming refund of any excise duty paid by him
may make an application for refund of such duty to the Assistant Collector of Central Excise before the expiry
of six months from the relevant date in a prescribed form supported by documentary and other evidence
intended to establish that the amount of duty in relation to which such refund is claimed was collected from or
paid by him and the incidence of such duty has not been passed on by him to any other person. A provision
provides that the limitation of six months shall not apply where such duty has been paid under protest. S.
11B(2)inter alia provides that the Assistant Collector while entertaining the claim for refund of duty may order
the refund of the amount of the duty paid by the claimant provided he had not passed on the incidence of
such duty to any other person. S. 12B then runs as follows :

"Every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved by him,
be deemed to have passed on the full incidence of such duty to the buyer of such goods."

S. 12 thus creates a rebuttable presumption that every person who has paid the excise duty has passed on
the burden of the same to the buyers of such goods. The presumption has to be rebutted by the
manufacturer who has paid the duty. The burden of proof is on the person claiming the refund to establish
that he has paid the duty but not passed on the same to the buyer of such goods.

The thrust of S. 11B(2) of the Excise Act is that the refund of the duty paid by the manufacturer can be
allowed, if due, only in cases where the assessee has not passed on the incidence of such duty to any other
person. The object of S. 11B is to prevent unjust enrichment of the manufacturers of goods. In India v. I.T.C.
Ltd.,1 during 1970 to 1973, the Company (ITC) paid excess excise duty to the government under a mistake
of law. The company came to know of the mistake as a result of the Supreme Court decision in 1973.2 The
company then filed an application before the concerned authority for refund of excess duty paid by it. The
Assistant Collector of Central Excise rejected the application for refund.

The company then appealed to the Collector of Central Excise who allowed refund for the period of 1972-73
but he rejected the application for refund for the period

70-72. The Company then filed a writ petition in 1976 for issue of mandamus3 for refund of the excess
amount. The Supreme Court rejected the claim for, as required by S. 11(B)(2), the company was not able to
furnish proof that the incidence of the excess duty had not been passed by it to any other person, but had
been borne by itself.

Commenting on this provision in Mafatlal, the Supreme Court has observed that it raises a rebuttable
presumption but the burden of rebutting it lies upon the person who claims the refund and it is for him to
allege and establish that as a fact he had not passed on the duty and, therefore, equity demands that his
claim for refund be allowed. In justification of this provision, the Court has observed :4
"It needs to be stated and stated in clear terms that the claim for refund by a person who has passed on the burden of
tax to another has nothing to commend itself; not law, not equity and certainly not a shred of justice or morality."

According to B.P. JEEVAN PEDDY, J., refund of illegally levied excise duty could be claimed only when a
manufacturer had not passed on the same to the consumers. He observed in justification of this rule :
"The manufacturer cannot claim to collect duty from both ends-refund from the government and tax from the
consumers. The refund of money in case of indirect taxes was out of question unless the manufacturer could show that
the burden had not been passed on."

(1) Mafatlal

Under S. 11B(3), no refund of excise duty shall be made except as provided under S. 11B(2), as mentioned
above. In Mafatlal5 the Supreme Court has given a very broad interpretation to this provision which is
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indicative of the judicial attitude to put restrictions on the right to claim restitution. Explaining the purport of
this provision, the Supreme Court has held that it expressly bars the jurisdiction of the civil courts.6 The Court
has said that the language of this provision is "specific" and "emphatic". The Central Excises and Salt Act is
a special enactment which creates new rights and special obligations and also provides forums and
procedures for ascertaining and adjudicating those rights and liabilities. The Act is a self-contained
enactment. The Act specifically provides for refund. It expressly declares that no refund shall be made
except in accordance therewith. Any and every ground including the violation of the principles of natural
justice and infraction of fundamental principles of judicial procedure can be urged in the appeals, obviating
the necessity of a suit or a writ petition in matters relating to refund.

S. 11 prescribing procedure for refund constitutes 'law' within the meaning of Art. 265 of the Constitution.7 "It
follows that any action taken under and in accordance with the said provision would be an action taken under
the "authority of law" within the meaning of Art. 265. One cannot resort to S. 72 of the Contract Act8 in view
of the express declaration in S. 11B(3) that no claim for refund of any duty "shall be entertained except in
accordance with the said provision." Thus, it is not permissible to resort to S. 72, Contract Act, and claim
refund thereunder "as a separate and independent remedy" as such a course is expressly barred by S.
11B(3). Thus, a suit for refund would not lie. The Court has observed :9
"It, therefore, follows that any and every claim for refund of excise duty can be made only under and in accordance with
Rule 11 or S. 11B, as the case may be, in the forums provided by the Act. No suit can be filed for refund of duty
invoking S. 72 of the Contract Act".

As regards the writ jurisdiction under Arts. 32 or 226, no statutory provision can curtail this jurisdiction, or the
remedies available thereunder. But, the Court has emphasized that, while exercising power under Arts. 32 or
226,10 "the Court would certainly take note of the legislative intent manifested in the provisions of the Act and
would exercise their jurisdiction consistent with the provisions of the enactment."11

If a provision of the Act is held unconstitutional, such a situation would fall outside S. 11B. But even in such a
case, there is no automatic or unconditional right to refund whether under Art. 265 or S. 72, Contract Act,
and the claim to refund is subject to the doctrine of unjust enrichment.12

With effect from 20-9-1991, S. 11B has been amended and a few more provisions (Ss. 12B and 12C) have
been added. S. 12B provides for presumption that the incidence of duty has been passed on to the buyer. S.
12C provides for the consumer welfare fund. Under S. 11B, refund could not be granted if the duty has been
passed on to the consumer. It is for the excise-payer to establish that the amount of duty of excise in relation
to which the refund is claimed was collected or paid by him and the incidence of such duty had not been
passed by him to any other person.

(2) SRF

In SRF Ltd. v. Asstt. Collector of Central Excise, Trichy,13 the excise duty paid by the appellant was not
refunded to him even though it was held that no duty was leviable. The reason was that SRF could not
satisfy the court that the incidence of duty had not been passed on to others. The Court observed :
"It has been held that whether the claim for restitution is treated as a constitutional imperative or as a statutory
requirement, it is neither an absolute right nor an unconditional obligation but is subject to the requirement that the
burden of duty has not been passed on to others. It was not submitted before us that this requirement has been fulfilled
by the appellant."

(b) Validating Acts

Usually, when the court declares a levy and collection of a tax to be illegal, the concerned legislature enacts
an Act validating the levy retrospectively so that the money already collected need not be returned.
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Questions have been raised in a number of cases whether such validating Acts are valid. The courts have
taken the position that if judicial review is a 'basic feature' of the Constitution, no legislature can interfere
with, or encroach into, judicial review.

Accordingly, the courts have ruled that a legislature cannot overrule a judicial decision and declare that a
court decision shall be deemed to be ineffective. A validating Act seeking to do just that will be held to be
invalid. Accordingly, a validating law was declared to be invalid in Janapada Sabha, Chhindwara v. Central
Provinces Syndicate Ltd.,14 on the ground that instead of amending the law in question retrospectively, it
sought to declare the Court judgement ineffective.

On the other hand, if the validating Act seeks to amend the tax law in question and remove its defects
retrospectively so as to validate the levy then it is a valid law. The validity of a validating Act is to be
adjudged by applying the following tests :

(1) whether the legislature enacting the validating Act has competence over the subject-matter;
(2) whether by validation the legislature has removed the defect which the court had found in the
previous law;
(3) whether the validating law is inconsistent with a fundamental right guaranteed by the
Constitution.

The leading judgement on this topic is Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality.15

(1) Prithvi cotton mills

During the years 1961 to 1964, the municipality levied a tax on 'lands and buildings' belonging to the mills on
percentage basis on the capital value of lands and buildings. The Supreme Court declared the tax to be
invalid. The State Legislature then enacted a validating Act and its constitutional validity was challenged.

The Supreme Court ruled in Shri Prithvi Cotton Mills v. Broach Borough Municipality16, that a legislature
does possess power to validate statutes and to pass retrospective laws. If a legislature seeks to validate a
tax declared by a court to be illegally collected under an invalid law, then the cause of invalidity must be
removed before validation of the law can be effective.

The most important condition, however, is that the legislature ought to have the power to levy the tax in
question, otherwise the tax law would ever remain illegal. The Court has observed that it would not be
sufficient to declare merely that the court decision invalidating the law would not be binding for that would
amount to reversing the decision in exercise of judicial power which the legislature does not possess.
Validation of a tax declared illegal may be done only if the grounds of illegality or invalidity are removed by
the legislature. The validity of the Validating Act depends on whether in making it the legislature has
removed the defect which the court found in the existing law and makes adequate provisions in the
Validating Act for a valid imposition of the tax. The Court declared that in the instant case, the Validating Act
did validate the imposition of the tax in question.17

(2) Krishna

A levy imposed by the Bangalore Development Authority on owners of land and building as quashed by the
High Court that BDA had not been rendering any service to the tax-payers because the tax was service
oriented.

The Government issued an ordinance and then enacted an Act making some changes in the original Act
regarding the powers of the BDA to levy tax or cess. A clause in the validating Act validated all the
collections made by the BDA which was declared as being without authority of law by the earlier judgment of
the High Court.

The Supreme court ruled in B. Krishna Bhat v. State of Karnataka18 that so far as collections made prior to
the coming into force of the Amending Act because the levy was invalidated on the ground of
non-performance of any service by the BDA. This cannot be validated by the validating clause. The court
 1404
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observed :

"It is also a settled principle in law that when invalidity of collection of levy is pointed out by the court based on
non-existence of certain necessary facts, it is not open to the Legislative to merely controvert that finding of the court
and validate such collection.19

5. REMEDIES

(a) Civil Suit

S. 9 of the Civil Procedure Code runs as follows :

"The courts shall, subject to the provisions herein contained, have jurisdiction to try all suits of a civil nature excepting
suits of which their cognisance is either expressly or impliedly barred."

In Venkataraman,20 the company was carrying on the business of building contractors. The company was
assessed to sales tax during the years 1948-49 to 1952-53 on the basis that the contracts executed by them
were works contract. In 1954, the Madras High Court ruled that the relevant statutory provisions subjecting
works contracts to sales tax were ultravires the power of the legislature. The assessee sent a notice to the
State for refund of the amounts collected from it. As the State did not comply with the company's demand, it
filed a civil suit against the state for recovery of the amount of taxes illegally levied and collected from it. The
question was raised whether the suit was maintainable.

Holding the suit to the maintainable, the Supreme Court ruled that when a tax has been collected under a
legal provision which is later declared to be unconstitutional, a suit for the refund of the tax money paid can
be filed under S. 9, C.P.C. Explaining the purport of S. 9, the Court has said that a suit is expressly barred if
a legislation in express terms says so. It is impliedly barred if a statute expressly creates a new offence or a
new right and prescribes a particular penalty or a special remedy.21 If a statute imposes a liability and
creates an effective machinery for deciding questions of law or fact arising in regard to that liability, it may, by
necessary implication, bar the maintainability of a civil suit in respect of the said liability.

A statute may also confer exclusive jurisdiction on the authorities constituting the said machinery to decide
finally a jurisdictional fact thereby excluding by necessary implication the jurisdiction of a civil court in that
regard. As regards filing a suit when an assessment is made under a provision ultra vires the Constitution,
the Court has observed that an authority created by a statute cannot question the vires of that very statute or
any provision thereof whereunder it functions. It must act under the Act and not outside it. If it acts on the
basis of a provision of the statute, which is ultra vires, to that extent it would be acting outside the Act and not
under it in making an assessment on the basis of the relevant part of the charging section. In that event, a
suit to question the validity of such an order made outside the Act would certainly lie in a civil court. As in the
instant case the sales tax authorities had acted outside the Act and not under it in making the assessment on
the basis of the charging section which was ultra vires, a suit to question the validity of an order made
outside the Act would certainly lie in a civil court.

The question as to how far a privative clause in a statute bars civil suits, has been discussed in detail later in
the book.22

6. WRITS

Is a writ petition a suitable method to claim restitution?

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As a general rule, it can be stated that under Art. 226, a High Court has power to pass any appropriate order
in exercise of its power to issue a writ.23 Therefore, in theory, a writ petition under Art. 226 (or under Art. 32
as well)24 of the Constitution would lie for enforcing the obligation of the state to refund the money collected
by the state as an illegal tax or duty. The High Court under Art. 226 (or the Supreme Court for that matter
under Art. 32) can direct refund of the tax by the State which it may have collected without any legal authority
to collect the same. As the Supreme Court has observed in ShriVallabh Glass Works Ltd. v. Union of India
:25

"It is not disputed that the High Courts have power, for the purpose of enforcement of fundamental rights and statutory
rights, to make consequential orders for repayment of money realised by Government without the authority of law
under Art. 226 of the Constitution. This is an alternative remedy provided by the Constitution in addition to but not in
supersession of the ordinary remedy by way of suit in the absence of any provision which would bar such a suit either
expressly or by necessary implication".

It may also be noted that the power to issue a writ under Arts. 32 and 226 cannot be taken away or curtailed
by any legislation short of a constitutional amendment.26 The remedy by way of writ to claim refund of any
amount realised without the authority of law may be regarded as an alternative remedy provided by the
Constitution in addition to, but not in supersession of, the ordinary remedy by way of suit.

But the essential feature of the writ jurisdiction is that the court's power to issue a writ is discretionary.27
Accordingly, the courts function in the exercise of their writ jurisdiction under certain self-imposed limitations.
Therefore, as a practical step, to keep the number of writ petitions within manageable limits, the Supreme
Court has classified writ petitions seeking restitution into two categories :28

(i) A writ petition solely praying for the issue of a writ of mandamus29 directing the State to refund
the money illegally collected by it from the petitioner. The reason is that a claim for such a
refund can always be made in a suit against the authority which had illegally collected the
money as a tax. It is then open to the state to raise all possible defences to the claim.
(ii) A writ petition claiming refund as a consequential relief.

In such a petition, the law or the order under which the tax has been collected is challenged as invalid and
refund of the money paid by the petitioner is claimed back as a consequential relief.

On this distinction, the Supreme Court has observed in Salonah Tea Co. :30 "Courts have made a distinction
between those cases where a claimant approaches a High Court seeking relief of obtaining refund only and
those where refund is sought as a consequential relief after striking down of the order of assessment e.g."
The reason for drawing such a distinction is that a claim for refund can always be made in a civil suit against
the authority which had illegally collected the money as a tax, and in any such suit, it would be open to the
State to raise all possible defences to the claim, defenses which cannot, in most cases, be appropriately
raised and considered in the exercise of writ jurisdiction.31

As regards the first category, mentioned above, the judicial attitude is to discourage such petitions. The
Supreme Court has often stated that a writ petition is not ordinarily maintainable solely for the purpose of
directing the State to refund the money, and the more suitable remedy in such a situation will be a suit
against the authority which had illegally collected money as a tax.32 The reason for this judicial attitude is
that in a suit, the State can raise defences to the claim for refund and such defences may not be
appropriately raised and considered in a writ petition.

(1) Sugan Mal

Reference may be made to Sugan Mal v. State of Madhya Pradesh33 in support of this proposition. The
company paid industrial tax on being provisionally assessed for the years 1941-1946. The final assessment
was made in 1952. On appeal, the assessment was quashed by the appellate authority on the ground that
the company was not liable to pay any industrial tax. No direction was given by the appellate authority for the
refund of the tax which had been realised from the appellant. The appellant then approached the government
which refunded the tax paid after January 26, 1950 (the date when the Constitution came into force), but
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Page 353

refused to refund the amount paid prior to that date. The appellant then filed a writ petition in the High Court
under Art. 226 for issue of a writ of mandamus directing the State to refund the money illegally collected from
the company as a tax. Dismissing the writ petition, the Supreme Court held :34
". . . no petition for the issue of a writ of mandamus will be normally entertained for the purpose of merely ordering a
refund of money to the return of which the petitioner claims a right."

The Court observed further :

". . . normally petitions solely praying for the refund of money against the State by a writ of mandamus are not to be
entertained. The aggrieved party has the right of going to the civil court for claiming the amount and it is open to the
State to raise all possible defences to the claim, defences which cannot, in most cases, be appropriately raised and
considered in the exercise of writ jurisdiction."

(2) Cawasji

In Cawasji,35 the petitioner filed a writ petition challenging the validity of the tax law in question. The High
Court declared the law to be unconstitutional. Thereafter, the petitioner filed writ petitions for refund of tax
amount paid by him under the unconstitutional statute. These petitions were filed within three years of the
High Court decision declaring the statute to be unconstitutional. Thus, the writ petition claiming refund was
within the period of limitation.36 Still the High Court rejected the petition for refund and directed the
petitioners to take recourse to a civil suit.

On appeal, the Supreme Court refused to interfere with the High Court decision. The ground of rejection of
the writ petition was piecemeal litigation by the petitioner, i.e., the petitioner had not made the prayer for
refund in the original petition made by him for having the tax law declared unconstitutional. The Supreme
Court observed on this point :37 "In the circumstances of this case, having regard to the conduct of the
appellants in not claiming these amounts in the earlier petitions without any justification we do not think we
would be justified in interfering with the discretion exercised by the High Court in dismissing the writ petition
which were filed only for the purpose of obtaining the refund and directing them to resort to the remedy of
suits."

The truth of the matter, however, is that in the instant case, the payment in question was actually made as
early as 1962 and the refund was being claimed quite a few years later. Although the writ petitions were
within the period of limitation, the Court was reluctant to order refund of such an old payment, and hence the
Court took recourse to technical pleas to deny refund.

The result of this pronouncement was very harsh for the petitioner. If any person other than the petitioner
had filed a petition for refund within the limitation period on the basis of the court declaration of the
unconstitutionality of the law in question, he may have got the refund order. But the petitioner himself, who
took all the trouble to agitate the matter, was denied relief on the basis of a technical plea, borrowed from
private law. The question does arise as to how far such pleas should be applied by the courts in the area of
public law, so as to restrict the writ jurisdiction and defeat remedies and claims against excess of power by
the tax authorities, particularly, when the Indian Constitution has Article 265 prohibiting collection of tax
without the authority of law. Also, asking the petitioner to file a suit to claim refund instead of filing a writ
petition in no way discourages piecemeal litigation. In reality, in this case, a suit would have been the third
stage of proceeding. This case illustrates as to how legitimate claims of the people can be defeated by the
courts by imposing on them technical restrictions which undermine the very purpose of Article 226, viz., a
quick remedy.

On the other hand, a writ petition is maintainable to challenge the validity of an assessment on the ground of
illegality or unconstitutionality of the law in question and to claim refund of the tax paid as a consequential
relief. When the petitioner challenges the validity of the law imposing the tax, or the validity of an order of
assessment, the refund may be claimed as a consequential relief when the law or the order in question is
held to be invalid. This is an alternative remedy provided by the Constitution in addition to, but not in
supersession of, the ordinary remedy by way of suit in the absence of any provision which would bar such a
 1407
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suit either expressly or by necessary implication. The Supreme Court has observed in this connection in
Suganmal :38
"We do not consider it proper to extend the principle justifying the consequential order directing the refund of amounts
illegally realised, when the order under which the amounts had been collected has been set aside, to cases in which
only orders for the refund of money are sought. The parties had the right to question the illegal assessment orders on
the ground of their illegality or unconstitutionality and, therefore, could take action under Art. 226 for the protection of
their fundamental right, and the Courts, on setting aside the assessment orders, exercised their jurisdiction in proper
circumstances to order the consequential relief for the refund of the tax illegally realised."

Thus, the Court specifically accepted the maintainability of writ petitions falling in the second category
mentioned above.

(3) Bhailal

In State of Madhya Pradesh v. BhailalBhai,39 the Supreme Court has stated that if a right has been
infringed--whether a fundamental right or a statutory right--and the aggrieved party comes to the High Court
for enforcement of the right through a writ petition, it will not be giving complete relief if the court merely
declares the existence of such a right, or the fact that the existing right has been infringed without giving the
consequential relief. The Supreme Court has observed in the connection :
". . . the High Courts had power for the purpose of enforcement of fundamental rights and statutory rights to give
consequential relief by ordering repayment of money realised by the Government without the authority of law."

In the instant case, sales tax was being levied by the State, and the petitioners made payments by way of
such a tax. Later, the tax was held to be unconstitutional. The Supreme Court ruled that payment made by
the petitioners was made under a mistake of law under S. 72, Contract Act, and, therefore, the Government
must refund the amount. The Court pointed out that in a number of cases mandamus had been issued to
enforce such refunds by the government. As for example, in S.T.O. v. Kanhaiyalal Mukundlal Saraf,40 it was
held that mandamus could be issued when there were illegal assessments.

(4) Salonah

In Salonah Tea Co. v. Superintendent of Taxes, Nowgong,41 a tax was collected by the State Government
without the authority of law or without jurisdiction. The Supreme Court held the assessment order to be
invalid. Accordingly, the orders of assessment and notices of demand were set aside and the refund of the
tax paid was ordered as a consequential relief.42

The Court observed :43

"Normally, in a case where tax or money has been realised without the authority of law, the same should be refunded
and in an application under Article 226 of the Constitution the Court has power to direct the refund. . ."

(5) Pollution Control

The State Government collected water cess from sugar mills under the Water (Prevention and Control of
Pollution) Cess Act 1977. On a wirt petition being filed challenging the levy, the Supreme court ruled in 1992
that the levy on the sugar mills was ultra vires the act. After this decision, the sugar mills claimed the refund
of the amount illegally paid by them as cess. The concerned authorities did not respond at all. Thereupon, a
writ petition was filed in the High Court seeking mandamus directing the Pollution Board to refund the
amount. The High Court directed the Board to refund the amount paid by the sugar mills.

The Board appealed to the Supreme Court arguing that the writ petition was not maintainable as it was only
for refund of the amount. But the Supreme Court rejected the contention saying that in the instant case, "the
claims made for refund in the writ petitions were consequent upon declaration of law made by this Court."
Therefore the High Court committed no error in entertaining the writ petitions. The court explained the
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position thus :
"It is one thing to say that the High Court has no power under Art. 226 of the constitution44 to issue a writ of mandamus
for making refund of the money illegally collected. It is yet another thing to say that such power can be exercised
sparingly depending on facts and circumstances of each case. For instance, in the cases on hand where facts are not
in dispute, collection of money as cess was itself without the authority of law' no case of undue enrichment was made
out and the amount of cess was paid under protest, the writ petitions were filed within a reasonable time from the date
of the declaration that the law under which cess was collected was unconstitutional. There is no good reason to deny a
relief of refund to the citizens in such cases on the principles of public interest and equity."45

(6) Baidyanath

On 7th September, 1962, the Supreme Court decided in a writ petition under Art. 32 that certain ayurvedic
medicines could not be subjected to the State excise duties.46 The Court passed "no order as to the claim for
refund for that is a matter which the petitioners can take up with the State Governments concerned according
to law."

One of the writ petitioners applied to the State for refund on the 17th October, 1962. The State rejected the
claim in 1973 without serving any reasons. The concerned party then filed a writ petition in the High Court to
quash the order of the State refusing to refund and to direct the State to make the refund. But the High Court
rejected it on the ground that the writ petition, in essence, sought to obtain only a money decree, and that
this could not be allowed. Concerned was allowed to file a suit to recover the amount of the refund which it
claimed.

On appeal, the Supreme Court reversed the High Court.47 The State opposed the writ petition, pleading
Suganmal, on the ground that it was not maintainable because it was merely for refund of money. The
Supreme Court rejected this contention. The Supreme Court ruled that the writ petition was not limited to
seeking refund. It also sought the quashing of the order of the State Government rejecting the claim for
refund.

The Court observed :

"We, therefore, cannot agree with the High Court that the writ petition was principally for the refund. Having regard to
the fact that the order of the respondent-state rejecting the claim for refund gave no reasons for its rejection, there was
much to be said about its validity."

The Court further ruled that even if the writ petition be treated as being only for claiming refund, the Court
observed that it "was not a run-of-the mill case;" it was a case where the State had not acted as "this Court
had expected a high constitutional authority to act, in furtherance of the order of this Court."

By the earlier order made by the Court in 1962, the State was obliged to refund to the writ petitioners the
amount collected from them through the illegal levy. The State took 11 years to reject the petitioners' claim
and that, too, without giving any reasons. This amounted to acting "disrespectfully" to the Supreme Court.
Therefore, even assuming that the writ petition was only for refund of money, it "fell outside the ordinary
stream of writ petitions".

The Court made a biting comment on the behaviour of the State authorities. The Court observed :
"The writ petition was not a run-of-the-mill case. It was a case where the respondent State had not acted as this Court
had expected on high constitutional authority to act, in furtherance of the order of this court. That is something that this
Court cannot accept. the respondent-state was obliged by this Court's order to refund to the writ-petitioners the
amounts collected from them in the form of the levy that was held to be illegal. If there was good reason in law for
rejecting the refund claim, it should have been stated. Not to have responded to the appellant's refund claim for 11
years and then to have turned it down without reason is to have acted disrespectfully to this court. Even assuring,
therefore, that this was a writ petition only for money, the writ petition fell outside the ordinary stream of writ petitions."

Accordingly, the Court directed the State to refund the amount along with an interest of 12% per annum until
payment of realisation. The Court also directed the State to pay Rs. 25,000/- as costs of appeal.
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Even in the cases falling in the second category, the power to give relief under Art. 226 is discretionary with
the High Court. The court may refuse to give relief if there is unreasonable delay on the part of the petitioner
to seek relief,48 or there may arise questions of fact or law which the court may feel could be decided more
effectively in a regular suit rather than in a writ proceeding.49 Accordingly, the Supreme Court has observed
in Bhailal Bhai :50
"Thus, where . . . a person comes to the Court for relief under Art. 226 on the allegation that he has been assessed to
tax under a void legislation and having paid it under a mistake is entitled to get it back, the court, if it finds that the
assessment was void, being made under a void provision of law, and the payment was made by mistake, is still not
bound to exercise its discretion directing repayment. Whether repayment should be ordered in the exercise of this
discretion will depend in each case on its own facts and circumstances. It is not easy nor is it desirable to lay down any
rule for universal application . . . ."

On this point, the court has observed in Orissa Cement :51

"Once the principle that the court has a discretion to grave or decline refund is recognised, the ground on which such
discretion should be, exercised is a matter of consideration for the court having regard to all the circumstances of the
case."

The following cases illustrate the discretionary nature of the writ jurisdiction so far as it concerns the question
of restitution.

(7) D.R. Mills

The appellants were licensed dealers in foodgrains. On their request, the State agreed to issue export
permits after payment of administrative charges. There was no legal authority for the levy. Later, the dealers
filed writ petitions seeking direction to the State to refund the sums of money collected from them. Their
contention was that they had paid the surcharge in the "mistaken belief" that the State had a right to collect
the same. The High Court in D.R. Mills v. Commissioner, Civil Supplies52 denied the refund on the ground
inter alia that the dealers paid the charges voluntarily and, therefore, in such a situation the Court would not
be justified in exercising discretion in favour of the petitioners who voluntarily paid the administrative
charges, obtained the export permits and derived considerable profiles there from.

On appeal, the Supreme Court refused to interfere with the High Court decision on several grounds. One,
where the High Court has in exercise of discretion refused to grant a writ of mandamus, the Supreme Court
"does not ordinarily interfere".53 Two, there are several triable issues like limitation, estoppel and questions
of fact in ascertaining the expenses incurred by the government for administrative surcharges of the scheme
and allocating the expenses with regard to quality as well as quantity of rice covered by the permits. The
Court observed :
". . . various questions of fact arise as to whether there was really mistake or it was a case of voluntary payment
pursuant to contractual rights and obligations."54

The Court also pointed out that in the instant case, the State did not support the demand for administrative
charges either as a tax or as a fee but as a term and condition of permit and as a term of agreement
between the parties for the maintenance and supervision expenses for the scheme for export permits of rice
from one block to another within the State or outside the State, and so the matter would not fall under S. 72,
Contract Act.55 Thus, the Court distinguished the fact situation in the instant case from that in the earlier
Tapioca case56 where the State had charged license fee without the authority of law.

(a) Moulding Relief

Even when Collection of cess levy or tax is held to be unconstitutional or invalid, the refund is not an
automatic consequence and does not follow necessarily in all cases. The Court exercise a discretion in the
matter and it may refuse refund on several grounds depending on the facts and circumstances of a given
 1410
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case.

The point that, in a writ petition, it is discretionary with the writ court to order or not to order restitution even
when the tax has been collected illegally is very well illustrated by the following cases of the Supreme Court.

(1) India Cements

Since 1961, the State of Tamil Nadu had been levying a cess on royalty payable on mining of limestone and
kankar. The tax was held valid by the Court in 1965 in the Murthy's case.57 But, in 1990, in India Cement Ltd.
v. State of Tamil Nadu,58 the Supreme Court declared the tax as unconstitutional as being beyond the
legislative competence of the State Legislature. as it was not relatable to any entry in list II, Schedule VII of
the Constitution.59 Even then, the Court ruled that the invalidity of the tax would be operative prospectively
and not retrospectively.60 This meant that while the State would not be able to collect the cess in future after
the Court's decision, the State would not be liable to refund the cess already collected prior to the date of the
judgment. The Court accepted the argument of the State that the money collected through the cess had
already been spent by it on the welfare of the villages and that the cess had been collected by the State after
the Murthy's decision which was now being overruled by the Court in the instant case.61

(2) Orissa Cement

Again, a similar cess was being levied by the States of Orissa and Madhya Pradesh since 1964. The High
Courts of Madhya Pradesh and Orissa declared the cess to be invalid in 1986 and 1989 respectively. The
matter came in appeal before the Supreme Court in Orissa Cement Ltd. v. State of Orissa.62 While the
Supreme Court upheld the High Courts' decisions as regards the invalidity of the cess, following its ruling in
India Cement, it refused to order refund of the cess from the date of its collection, but ordered refund thereof
from the date the same was declared invalid by the concerned High Court.

The Supreme Court did so "in the interests of equity and justice" as to refund all cess collected since 1964
"would work hardship and injustice." But the State could not, on any grounds of equity, be permitted to retain
the cess collected after the High Court declared it invalid. The Court asserted that even if the statutory levy
should be found to be invalid, the Court may not give directions to refund the amounts already collected by
way of the tax. The Court recognised the principle that when the Court finds a law to be beyond the
legislature's legislative competence, it renders the law void ab initio and the collections made thereunder
without the authority of law. Nevertheless, the Court took the view that "a finding regarding the invalidity of a
levy need not automatically result in a direction for a refund of all collections thereof made earlier." The Court
observed :63

"We are inclined to accept the view urged on behalf of the State that a finding regarding the invalidity of a levy need not
automatically result in a direction for a refund of all collections thereof made earlier. The declaration regarding the
invalidity of a provision and the determination of the relief that should be granted in consequence thereof are two
different things and, in the latter sphere, the Court, has, and must be held to have, a certain amount of discretion. It is a
well-settled proposition that it is open to the Court to grant, mould or restrict the relief in a manner most appropriate to
the situation before it in such a way as to advance the interests of justice."64

Referring to some earlier cases where directions for refund were refused or considered liable to be
refused,65 the Court stated :66
"The importance of these cases, however, lies not in the grounds on which refund has been held declinable but
because they lay down unequivocally that the grant of refund is not an automatic consequence of a declaration of
illegality. Once the principle that the Court has a discretion to grant or decline refund is recognised, the ground on
which discretion should be exercised is a matter of consideration for the Court having regard to all the circumstances of
the case."

Thus, the Court ruled that, even where the levy of taxes is found to be unconstitutional, the Court is not
obliged to grant an order of refund. The Court is entitled to refuse the prayer for refund for "good and valid
reasons." There is "no reason why the vital interests of the State" "should not be a relevant criterion for
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deciding that a refund should not be granted."

It is in the exercise of the discretionary power under Arts. 32 and 226 that the Supreme Court has evolved
the doctrine of unjust enrichment.67 As the Supreme Court has observed in Mafatlal, the power given under
Art. 226 "is a discretionary one and will be exercised only in furtherance of interests of justice." This factor
obliges the High Court "to enquire and find out whether the petitioner has in fact suffered any loss or
prejudice or whether he has passed on the burden. In the latter event, the Court will be perfectly justified in
refusing to grant relief. The power cannot be exercised to unjustly enrich a person".68

(3) Koluthara

An impost was levied for the welfare of the fishermen in Kerala. The money collected was to be transferred
to a welfare fund. The impost was held to be unconstitutional. Even then the Supreme Court accepted the
plea of the Government that no refund be allowed for the money already collected and credited to the welfare
fund and expended for the purposes of the welfare of the fishermen. The Court ruled that despite the
declaration of invalidity of the impost, the amount of contributions, already paid by persons not liable to pay
would not be liable to be refunded.69

(4) Pollution Control

Reference has already been made to U.P. Pollution Control Board v. Kanoria Industrcated Ltd.70 There the
cess in question was held invalid and the writ petition claiming refund was held maintainable. The Board yet
took the stand that the respondents were not entitled to refund because the amount collected by way of cess
has been passed on to the State Government which in turn gave it to the Central Government which had
passed the amount to various pollution control boards. But the Supreme Court rejected the argument.

Ordinarily, the High Court does not entertain a writ petition under Art. 226 if the relevant law already provides
an alternative adequate remedy. Therefore, if the law in question provides a machinery for challenging
imposition and collection of tax, and claiming restitution, the High Court may refuse to entertain a writ petition
for the purpose. But, ultimately, it is a matter of discretion for the High Court. When the High Court exercises
discretion in favour of accepting a writ petition, it would be wrong on the part of the Supreme Court to
interfere with the High Court's exercise of discretion.71 When the question of the constitutional validity of a
provision in a taxing statute is raised, the High Court does entertain the writ petition, for no body created
under a statute can go into the constitutional validity of the parent statute or any provision thereof.72

7. LIMITATION

When a suit is filed for the recovery of the amount paid to the State under a mistake of law, then such a suit
is governed by Art. 113 of the Limitation Act, 1963. Art. 113 prescribes a period of limitation of 3 years from
the date of payment for filing a suit for recovery of the excess duty. Further, S. 17(1)(c) of the Limitation Act
provides that where in the case of any suit or application for which a period of limitation is prescribed under
the Act, the suit or application is for relief from the consequences of a mistake, the period of limitation shall
not begin to run until the plaintiff or applicant had discovered it or could have with reasonable diligence
discovered it.

The mistake of law can actually become known to a party when a court makes a declaration as to the
invalidity of the statutory taxing provision in question. It is seldom that a person can, even with reasonable
diligence, discover a mistake of law before the delivery of a judgment adjudging the validity of the law. Thus,
if the plaintiff (A) comes to know of the mistake when a decision is rendered by the High Court in the case
filed by some other party (B), then the limitation of three years in case of A would start to run from the date of
the said decision.73 It is thus clear that a suit as well as a writ petition for refund of tax paid under a mistake
of law may lie within three years of the knowledge of the mistake. The Supreme Court has clearly stated this
principle in relation to writ petitions in Cawasji & Co. v. State of Mysore74 in the following words :75
 1412
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"for filing a writ petition to recover the money paid under a mistake of law, this Court has said that the starting point of
limitation is from the date on which the judgement declaring as void the particular law under which the tax was paid was
rendered, as that would normally be the date on which the mistake becomes known to the party."

More or less, the same limitation is applied both in suits as well as in writ petitions. There is no
constitutionally prescribed period of limitation for petitions under Art. 226, but the courts have, nevertheless,
accepted the limitation prescribed for suits as the guideline for writ petitions as well, though with some
flexibility depending on the specific fact situation.76

(1) Mafatlal

In its decision in Mafatlal,77 the Supreme Court has put a restriction on the

right to claim restitution in the matter of limitation to file a suit for the purpose.

In case of unconstitutionality of a taxing provision, the claim for refund is maintainable both under Art. 265 of
the Constitution78 as also under S. 72, Contract Act,79 but the Court has subjected this to one rider, viz.,
where a person approaches the High Court or the Supreme Court challenging the constitutional validity of a
tax provision, but fails in his endeavour, he cannot then later on take advantage of the declaration of
unconstitutionality of that very provision obtained by some other person on some other ground : "this is for
the reason that so far as he is concerned, the decision has become final and cannot be reopened on the
basis of a decision in another person's case."

Similarly, the Court has ruled that where the tax was paid on account of misconstruction, misapplication or
wrong interpretation of a provision of tax law, the assessee cannot invoke S. 72 when mistake is found in the
case of some other person. The Court has emphasized that an assessee must succeed or fail in his own
proceedings and the finality of the proceedings in his own case cannot be ignored and refund ordered in his
favour just because in another assessee's case, a similar point is decided in favour of that assessee.

The Court has taken this stand to remedy the presently prevailing 'chaotic' situation according to which every
decision of the Supreme Court and of the High Court on a question of law in favour of the assessee gives
rise to a wave of refund claims all over the country in respect of matters which have become final and are
closed long number of years ago. Therefore, the Court has observed :80
"We are, therefore, of the clear and considered opinion that the theory of mistake of law and the consequent period of
limitation of three years from the date of discovery of such mistake of law cannot be invoked by an assessee taking
advantage of the decision in another assessee's case."

Also, when a person affected by an illegal exaction files an application for refund under the provisions of the
relevant statute, the relief may be limited only to the period in regard to which the application is not barred by
limitation.81

A statutory provision may lay down the period of limitation for claiming refund of an illegally collected tax. A
provision (S. 14) in the Orissa Sales Tax Act provided that "no claim to refund of any tax paid under this Act
shall be allowed unless it is made within twenty-four months from the date on which the order of assessment
was passed or within twelve months of the final order passed on appeal in respect of the assessment
whichever period is less." In Orient Paper Mills,82 the Supreme Court ruled that the State Legislature was
competent to make provisions with regard to granting refund of tax improperly or illegally collected as it was
a subsidiary or ancillary matter to its primary power to make law with respect to sales tax.

(2) Burmah Construction

In Burmah Construction Co. v. State of Orissa,83 the company paid sales tax on 'works contracts' during the
period 1949-1954. In 1954, the High Court declared such a tax as unconstitutional.84 Thereafter, in 1954, the
Burmah Construction Company filed a writ petition in the High Court requesting inter alia for refund of the tax
paid by it. The High Court directed refund of the tax to the extent it was not barred by S. 14, mentioned
 1413
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above. On appeal, the Supreme Court sustained the High Court order and allowed refund of the tax to the
extent the order of assessment was made within 24 months of the filing of the writ petition in the High Court.
The Supreme Court observed in this connection :
"The petition in the instant case is for enforcement of the liability of the collector imposed by statute to refund a tax
illegally collected and it was maintainable : but it can only be allowed subject to the restrictions which have been
imposed by the Legislature. It is not open to the claimant to rely upon the statutory right and to ignore the restrictions
subject to which the right is made enforceable."

It needs to be pointed out that statutory provisions fixing the period of limitation from the date of assessment
may be regarded as unfair. The period of limitation should run from the date the mistake of law become
known to the taxpayer and not from the date of assessment as there may be a hiatus of time between the
two dates. The underlying purpose of statutory provisions, such as S. 14, as mentioned here, is to enable the
State to retain as much of illegally collected tax as possible.

While different periods of limitation are prescribed for the institution of different kinds of suits by the Limitation
Act, no Limitation period is fixed in Art. 226 or Art. 32, for filing writ petitions, and yet the writ court does not,
as a general rule, entertain stale claims.85 Therefore, ordinarily, a writ petition for refund ought to be filed
within three years from the date of knowing of the mistake of law. But, it does not mean that a writ petition
filed within three years will invariably be entertained by the court. The court has a discretion to reject a writ
petition filed within the period of limitation, i.e., within three years, having regard to the facts and
circumstances of each case.86 "Whether relief should be granted to a petitioner under Art. 226 of the
Constitution where the cause of action had arisen in the remote past is a matter of sound judicial discretion
governed by the doctrine of laches.87

The usual test to judge delay on the part of the petitioner is the period of limitation fixed in the Limitation Act
for filing a civil suit on the premise that where a writ petitioner could hare availed of the alternative remedy by
way of a suit files a writ petition in the High Court under Art. 226, it is appropriate ordinarily to construe any
unexplained delay in filing the writ petition after the expiry of the limitation period fixed for filing the suit as
unreasonable. But this rule cannot be a rigid formula. The present position, therefore, is that if a writ petition
is filed after the period of limitation fixed for a parallel civil suit in the Limitation Act, it will usually be
dismissed by the writ court unless the petitioner is in a position to justify the delay.

This rule, however, is not a rigid formula as there may be cases where even a delay of a shorter period may
be considered to be sufficient to refuse relief under Art. 226. There may also be cases where there may be
circumstances which may persuade the court to grant relief even through the petition has been filed beyond
the beyond the limitation period prescribed for the parallel suit. On the other hand, if the writ petition is filed
within the Limitation period, it may be entertained by the court but even here the court may dismiss the writ
petition if it thinks that the petitioner ought to have approached earlier and that he is guilty of laches.88 The
question of delay in writ petitions is regarded as a matter of discretion of the writ Court. "Each case has to be
judged on its own facts and circumstances touching the conduct of the parties, the change in situation, the
prejudice which is likely to be caused to the opposite party or to the general public e.g."89

(3) Aluminium Industries

In State of Kerala v. Aluminium Industries,90 the Court asserted that under Art. 226, a High Court could give
consequential relief by ordering repayment of money realised by the government without authority of law. But
the court also said that the writ could be refused if there was unreasonable delay in seeking the same. It said
that a limitation period of three years from the date of discovering the mistake would not be unreasonable
delay.91

Consequently, such petitions as had been filed after three years were dismissed.

(4) Tilokchand Motichand

A significant pronouncement in the area is Tilokchand Motichand v. Commissioner of Sales Tax.92 During
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the course of assessment for the period 1949-52, the firm contended that its sales were not subjected to
sales tax but its contention was not accepted by the authorities. The firm brought a writ petition in the High
Court challenging the assessment but this was rejected. In March, 1958, the firm received legal process for
payment of the tax dues failing which proceedings could be taken under the Land Revenue Act. The firm
paid but thereafter, in 1967, a provision similar to the one in question under which the tax was assessed was
held unconstitutional by the Supreme Court.93 Accordingly, in 1968, the firm brought a writ petition for refund
of the dues paid by it. Three views were expressed by the Judges participating in the decision :

(1) There was no mistake of law as the firm had earlier taken legal proceedings but did not raise
the point about unconstitutionality of the tax which ultimately prevailed with the Supreme Court
and the firm left the proceedings mid-way without going up to the right end of the judicial
ladder.
(2) There was mistake of law when he paid.
(3) The firm paid under coercion because of notice.

For payment made under compulsion or coercion, the period of limitation for filing a suit for refund would be
three years from the date of payment. In case of an action for refund of money under mistake, the limitation
starts from the date the mistake is discovered. Taking all the circumstances into consideration, the majority
view was that the payment was made not under mistake of law but under coercion. The petitioner
accordingly lost his case because of the expiry of the limitation period. The result of this pronouncement is
very unsatisfactory because the State was permitted to retain the money to which it was not legally entitled
by invoking technical arguments. More so, the result becomes unsatisfactory when it is remembered that it
was a writ petition under Art. 32 and not a suit.

(5) Raja Jagdambika

In Raja Jagdambika Pratap Narain Singh v. Central Board of Direct Taxes,94 the petitioner appellant was the
owner of a mango grove from which he had been deriving income from fruits and fallen trees. As far back as
1939-40, he had claimed that the income being agricultural income was immune from income tax. But his
objection was overruled and he was assessed to income tax year after year. Such an assessment was
obviously void as Parliament has no legislative power to levy agricultural income tax. In 1963, the High Court
declared that his income was not liable to income tax as it was agricultural income. But even then the tax
authorities refused refund of the money illegally collected from him on the technical ground of limitation and
finality.

The assessee then applied to the Central Board of Direct Taxes for refund. His application was rejected in
1968. It took the board five years to decide the matter. As the assessments for all these years had become
final, the Board was not the proper body to seek refund. Thereafter, he applied to the High Court under Art.
226 for refund of taxes paid by him. The High Court rejected his petition inter alia on the ground that several
years had elapsed between the last impugned order which related to the assessment year 1961-62 and the
writ petition which was filed in 1968.

On appeal, the Supreme Court upheld the High Court ruling. The Court emphasized that the remedy
provided by Art. 226 was discretionary. The Court pointed out that Art. 226 did not confer a blanket power,
regardless of temporal and discretionary restraints. "While the writ jurisdiction may not be muzzled by a
statutory finality to orders regardless of their illegality," yet if a party is "inexplicably insouciant and unduly
belated due to laches, the Court might ordinarily deny redress." If the High Court had exercised its discretion
to refuse, the Supreme Court should decline to disturb such exercise unless the ground was too untenable.
In the instant case, long years had elapsed after the High Court had held the taxed income to be agricultural.
The reason for inaction was stated to be an illusory expectation of suo motu modification of assessment
orders on representation by the party. The High Court had examined and dismissed the plea and,
consequently, refused relief. On appeal, the Supreme Court also declined to interfere.95

The Supreme Court recommended, nevertheless, that, despite inordinate delay, the appellate authority, if
moved under S. 30(2) of the Income tax Act, should give due consideration to condoning the delay in filing
the appeal.
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It may be noted that in this case, the controversy related to the assessment of the year 1962 which was
challenged resulting in the High Court's decision. The ruling can be justified only on the ground that the
petitioner approached the court for refund after five years of the High Court decision holding the tax
unconstitutional. The case shows how at times administrative officials ride roughshod over people's rights.
This was a fit case where the Court ought to have relaxed the rule regarding laches and give relief to the
petitioner who had all the equities in his favour. The Court characterised the government as not a virtuous'
litigant but still it rejected his petition. The delay in filing the petition after the High Court's 1963 decision was
only because it took five years for the board to decide the matter. This was a sufficient ground for waiver of
the rule of laches. The petitioner was taking recourse to the alternative remedy available under the law. That
the Court was convinced of the equities being in favour of the petitioner is clear from the fact that it directed
the tax authorities to consider condoning the delay. If the tax authorities could condone the delay, the court
could as well do the same. After all, it is to be remembered that the rule of laches is only a self-imposed
restraint by the courts which should not be applied so rightly as to defeat the legitimate claims of the people
for no fault of theirs. A too rigid adherence to the rule will only encourage the administrative officers to be
recalcitrant. The above case shows how the courts have weakened their own control over the Administration
by taking recourse to technicalities more than the legal rights of the people, the enforcement of which is the
basic purpose of the writ system. These cases give the impression that as a matter of judicial policy, the
courts lean towards, 'no refund' by the Administration rather than individual right.

(6) Bhailal

In Bhailal Bhai,96 the respondent paid sales tax on imported tobacco. Such a tax was declared to be
unconstitutional under Art. 301 of the Constitution97 by the High Court in 1956. In the instant case, the
Supreme Court ordered refund of tax in all those cases where writ petitions for refund had been filed within
three years of the High Court decision. But refund was refused in all those cases where the applications
were filed after three years. Here the Court observed the limitation period set out in Art. 113 of the Limitation
Act, as given above.

(7) Cawasji

In Cawasji,98 the appellant paid education cess levied under a State Act, for the years 1951-52 to 1965-66 in
one case, and from 1951-52 to 1961-62 in the other case. On a writ petition filed by the appellant challenging
the validity of the law in question, the High Court struck down the cess in 1968, holding the impugned law as
unconstitutional. This judgment was affirmed by the Supreme Court in 1971. In the middle of 1968, the
appellant filed a writ petition claiming refund of the cess paid by him during the period 1951-52 to 1965-66
under the unconstitutional statute. The petitioner contended that payment of the tax was made under a
mistake of law which was discovered only in 1968. The with petitions were filed within three years, the period
of limitation, from the date of the High Court decision declaring the tax law in question to be unconstitutional.

Following Bhailal Bhai and Aluminium Industries, the Court ruled that the taxes paid without the authority of
law could be recovered through a writ petition and that by virtue of S. 17(1)(c) of the Limitation Act, the
period of limitation would not begin to run in a suit for relief on the ground of mistake until the plaintiff has
discovered the mistake or could, with reasonable diligence, have discovered the mistake. The Court
summarized the law as follows :99
"Therefore, where a suit will lie to recover moneys paid under a mistake of law, a writ petition for refund of tax within.
The period of limitation prescribed, e.g., within 3 years of the knowledge of the mistake, would also lie. For filing a writ
petition to recover the money paid under a mistake of law, this court has said that the starting point of limitation is from
the date on which the judgement declaring as void the particular law under which the tax was paid was rendered as
that would normally be the date on which the mistake becomes known to the party. If any writ petition is filed beyond
three years after that date, it will almost always be proper for the court to consider that it was unreasonable to entertain
that petition, though, even in cases where it is filed within three years, the Court has discretion, having regard to the
facts and circumstances of each case, not to entertain the application."

Nevertheless, in the instant case, the High Court rejected the writ petition. The petitioner was directed to take
recourse to the remedy by way of suit. On appeal, the Supreme Court refused to interfere with the High
Court's discretion.
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This formulation made it possible for a tax payer to get tax refund several years after the date of payment
thereof. The court realized that this rule might "both be inexpedient and unjust so for as the state is
concerned". A tax is collected for the common good and it would be unjust to refund it after it has been spent.
Nor is there any provision under which the court can deny refund to a person who has already recouped him
self by collecting the tax money from others. At this time, however, the court left the matter to Parliament to
rectify. But, in course of time, the court has itself sought to improve the matters in two ways, viz. : (1) by
modifying the doctrine of limitation; (2) by evolving the doctrines of unjust enrichment.

(8) Vallabh Glass

In Shri Vallabh Glass,1 the assessee had been paying excise duty on goods produced by him since October,
1963. The Department had assessed the duty payable by the assessee under a wrong legal provision and
the assessee was obliged to pay the duty so assessed. The assessee filed a writ petition in February, 1976,
questioning the validity of the levy. The Supreme Court accepted the position that the petitioners (now
appellants) had paid duty in excess of what they were bound in law to pay. The Court, accordingly, allowed
refund from February, 1973, and not for the period earlier than that. The Court thus adopted the limitation
period of three years prior to the filing of the writ petition as laid down for suits in Art. 113 of the Limitation
Act. As regards earlier payments, referring to S. 17(1)(c) of the Limitation Act, the Court assumed that on the
date each payment of excise duty was made by the assessee in excess of the proper duty payable by him,
he could have discovered with due diligence that the duty claimed from him was excessive. The Court also
said that the company had made excess payments on being assessed by the Department and, therefore,
such payments could not be treated as voluntary payments precluding the Company from recovering them.
Nor was the conduct of the Company (appellants) of such a nature as would disentitle them to claim refund
of excess payments made by them. There was thus no question of estoppel and acquiescence on the part of
the appellant company so as to disentitle it from claiming refund.

(9) Salonah

In Salonah Tea,2 the Supreme Court allowed refund because the writ petition was filed shortly after the
company came to know that there was mistake in paying the tax and that they were entitled to refund of the
amount so paid by it. The Court however expressed a more relaxed view on the limitation period. The Court
observed :
"It is true that in some case the period of three years is normally taken as a period beyond which the court should not
grant relief but that is not an inflexible rule. It depends on the facts of each case."

In the instant case, the tax was being collected for several years. On 10th July, 1973, the Gauhati High Court
in the Long Soong case declared the assessment of the tax as being without jurisdiction. Thereafter, the
petitioner filed a writ petition in November, 1973, for quashing the assessment of the tax and refund of the
money already paid by him. The High Court in 1979 set aside the assessment but refused to order refund
pleading laches on the petitioner's part. On appeal, the Supreme Court reversed the High Court and ordered
refund of the tax paid earlier. The Court pointed out that the petitioner came to know of the mistake of law
only after the Loong Soong case and he filed the writ petition within a few months of his coming to know the
mistake of law so there was no question of laches. It was wrong on the part of the High Court to have
quashed the assessment but not to give the consequential relief. It may be noted that in the instant case, the
writ petition was not merely for claiming the consequential relief of refund but also was one for declaring the
assessment order as being without jurisdiction and for consequential relief for refund.

(10) ITC

In Union of India v. ITC Ltd.,3 the Company paid excise duty during the period September 1, 1970 to
February 28, 1973. In 1973, the Supreme Court gave its decision in Voltas.4 Thereafter, the Company came
to know that it paid excess excise duty. The Company applied to the appropriate authority for refund of the
excess duty paid under mistake of law for the period 1/9/70 to 28/8/73. The Assistant Collector rejected the
applications on the ground of laches. On appeal, the Collector of Central Excise allowed refund for the period
20/2/72 to 28/2/73 and refused to refund for the period 1/9/70 to 19/2/72 on the ground that the same was
 1417
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barred by limitation.

The company then moved a writ petition seeking quashing of the collector's order and also sought a direction
by way of mandamus for refund of the excess duty paid. The High Court allowed the writ petition on the
ground that the Company paid under a mistake of law and the government was bound to refund the same as
the company was not bound to pay the same. The Court also ruled that the petitioner company could not be
non-suited on the ground of limitation. On appeal by the Government, the Supreme Court upheld the High
Court judgment saying that the company had approached the Assistant Collector, Excise, soon after coming
to know of the judgment in Voltas and, therefore, the assessee was not guilty of any laches in claiming
refund.

(11) Dehri Rohtas

In Dehri Rohtas,5 the district board demanded cess from the railway company for the period 1953-67. The
demand was prima facie without jurisdiction. The railway company filed a suit against the district board which
was dismissed in 1971. An appeal filed against the decision was dismissed by the High Court in 1980. The
company then filed a writ petition challenging the demand and, thus, the question of laches arose. The
Supreme Court condoned the delay in the circumstances of the case. The Court observed :
"The real test to determine delay in such cases is that the petitioner should come to the writ court before a parallel right
is created and that the lapse of time is not attributable to any laches or negligence."

The claim of the cess by the district board was quashed as it was beyond its authority.

(12) Bombay Tyres

In this case, the writ petition for refund of tax paid by mistake was filed long after the court declaration that
the levy was invalid. The writ petition was rejected on the ground of laches. The Supreme Court applied the
rule of general period of limitation prescribed for filing of suits for recovery of amount due.6

(13) Pollution Control

Reference to this case has made earlier.7 On the question of reasonable time within which the tax-payer
should claim refund of the tax money collected from him illegally, the Supreme Court has observed :
"In exercise of writ jurisdiction, facts and circumstances of each case are to be kept in mind in ascertaining whether
there have been laches on the part of the parties seeking relief in due time or not."

In the instant case, the Court ruled that there was no laches on the part of the writ petitioner. They made
claims for refund within a reasonable time after the court decision striking down the levy in question. On the
facts and circumstances of the case "there was no question of delay and laches on the part of the
respondents [writ-petitions]."

1 Annapurna Match Industries v. Union of India, AIR 1976 Cal. 110 [LNIND 1975 CAL 239] [LNIND 1975 CAL 239] [LNIND
1975 CAL 239]; AIR 1971 AP 69 [LNIND 1970 AP 76] [LNIND 1970 AP 76] [LNIND 1970 AP 76].

2 H.H.M. Ltd. v. Administrator, Bangalore City Corpn., AIR 1990 SC 47 [LNIND 1989 SC 488] [LNIND 1989 SC 488] [LNIND
1989 SC 488]: (1989) 4 SCC 640; U.P. Pollution Control Board v. Kanoria Industrial Ltd., AIR 2001 SC 787: (2001) 2 SCC 549
: 2004 (2) Mad LJ 36; see, infra.

3 Bishamber Dayal Chandra Mohan v. Uttar Pradesh, AIR 1982 SC 33, 49: (1982) 1 SCC 39 [LNIND 1981 SC 427] [LNIND
1981 SC 427] [LNIND 1981 SC 427].

4 AIR 1990 SC 772 [LNIND 1987 SC 865] [LNIND 1987 SC 865] [LNIND 1987 SC 865], 775 : (1988) 1 SCC 401 [LNIND 1987
SC 865] [LNIND 1987 SC 865] [LNIND 1987 SC 865] : (1988) 173 ITR 42.
 1418
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5 Salonah Tea Co. v. Superintendent of Taxes Nowgang, AIR 1990 SC 772 [LNIND 1987 SC 865] [LNIND 1987 SC 865]
[LNIND 1987 SC 865], 775: (1988) 1 SCC 401 : (1988) 173 ITR 42.

6 AIR 1993 SC 2135, 2138 : 1993 Supp (4) SCC 326.

7 H.H.M. Ltd. v. Administrator, Bangalore City Corp., AIR 1990 SC 47 [LNIND 1989 SC 488] [LNIND 1989 SC 488] [LNIND
1989 SC 488]; see infra, (1989) 4 SCC 640 [LNIND 1989 SC 488] [LNIND 1989 SC 488] [LNIND 1989 SC 488].

8 Ghulam v. State of Rajasthan, AIR 1963 SC 379 [LNIND 1962 SC 180] [LNIND 1962 SC 180] [LNIND 1962 SC 180]: 1963
(2) SCR 255;; Mehra v. State of Maharashtra, AIR 1971 SC 1130 [LNIND 1971 SC 185] [LNIND 1971 SC 185] [LNIND 1971
SC 185]: (1971) 2 SCC 54.

9 Ghulam v. State of Rajasthan, AIR 1963 SC 379 [LNIND 1962 SC 180] [LNIND 1962 SC 180] [LNIND 1962 SC 180]: 1963
(2) SCR 255; Poona Municipality v. Dattatraya, AIR 1965 SC 555 [LNIND 1964 SC 174] [LNIND 1964 SC 174] [LNIND 1964
SC 174]: 1964 (8) SCR 178; Bharat Kala Bhandar v. Dhamangaon Municipality, AIR 1966 SC 249 [LNIND 1965 SC 105]
[LNIND 1965 SC 105] [LNIND 1965 SC 105]: 1965 (3) SCR 499; Orissa Cement Ltd. v. State of Orissa, AIR 1991 SC 1676
[LNIND 1991 SC 190] [LNIND 1991 SC 190] [LNIND 1991 SC 190]: 1991 Supp (1) SCC 430; Koluthara Exports Ltd. v. State of
Kerala, (2002) 2 SCC 459 [LNIND 2002 SC 92] [LNIND 2002 SC 92] [LNIND 2002 SC 92] : AIR 2002 SC 973 [LNIND 2002 SC
92] [LNIND 2002 SC 92] [LNIND 2002 SC 92].

10 Atiabari Tea Co. v. State of Assam, AIR 1961 SC 232 [LNIND 1960 SC 175] [LNIND 1960 SC 175] [LNIND 1960 SC 175]:
1961 (1) SCR 809. In this case, a tax imposed on transportation of goods was held to have been hit by Art. 301 of the
Constitution.

11 Jagannath v. State of Uttar Pradesh, AIR 1962 SC 1563 [LNIND 1962 SC 145] [LNIND 1962 SC 145] [LNIND 1962 SC
145]: 1963 (1) SCR 220; Yasin v. Town Area Committee, AIR 1952 SC 115 [LNIND 1952 SC 11] [LNIND 1952 SC 11] [LNIND
1952 SC 11]: 1952 SCR 572.

12 K.T. Moopil Nair v. State of Kerala, AIR 1961 SC 552 [LNIND 1960 SC 331] [LNIND 1960 SC 331] [LNIND 1960 SC 331]:
1961 (2) SCR 77. For discussion on this aspect of Art. 14, see, M.P. JAIN, Treatise, I, Chapter XVIII.

13 Ahmedabad Urban Development Authority v. Sharad Kumar, AIR 1992 SC 2038 [LNIND 1992 SC 424] [LNIND 1992 SC
424] [LNIND 1992 SC 424]: (1992) 3 SCCR 285. On delegated legislation, see, M.P. JAIN, A Treatise on Adm. Law, I, Chapters
IV, V and VI; M.P. JAIN, Cases on Indian Adm. Law, I, Chapters III, IV & V.

14 Phani Bhushan v. Province of Bengal, 54 CWN 177.

15 Amalgamated Coalfields v. Janapada Sabha, AIR 1961 SC 964 [LNIND 1961 SC 52] [LNIND 1961 SC 52] [LNIND 1961 SC
52]: 1962 (1) SCR 1.

16 Khurai Municipality v. Kamal Kumar, AIR 1965 SC 1321 [LNIND 1964 SC 358] [LNIND 1964 SC 358] [LNIND 1964 SC
358]: 1965 (2) SCR 653.

17 M. Appukutty v. STO, AIR 1966 Ker 55 [LNIND 1964 KER 343] [LNIND 1964 KER 343] [LNIND 1964 KER 343].

18 New India Industries Ltd. v. Union of India, AIR 1990 Bom 240, 244.

19 See, infra, on this topic.

20 See, infra.

21 See, infra, for discussion on Art. 226 of the Constitution.

22 See, infra, for discussion on Art. 32 of the Constitution.

23 CRAIG, Administrative Law, 555.

24 CRAIG, Administrative Law, 556. Also see, WADE, Administrative Law, 791 (1988).

25 See, P.B.H. BIRKS, Restitution from Public Authorities, (1980) Current Legal Problems, 191; WADE, Administrative Law,
792 (1988).

26 WOOLWICH Equitable Building Society v. Inland Revenue Commissioners, (1993) AC 70.

27 Lord GOFF, Woolwich Equitable Building Society v. Inland Revenue Commissioners, (1993) AC 70 at 171.

28 Law Comm., Restitution: Mistakes of Law and Ultra vires Public Authority Receipts and Payments, Law Comm. No. 227
(1994).

29 AIR 1975 SC 152 [LNIND 1974 SC 354] [LNIND 1974 SC 354] [LNIND 1974 SC 354]: (1975) 1 SCC 281.

30 AIR 1980 SC 1124 [LNIND 1980 SC 502] [LNIND 1980 SC 502] [LNIND 1980 SC 502]: 1980 Supp SCC 27.
 1419
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31 Motilal Padampat Sugar Mills v. State of Uttar Pradesh, AIR 1979 SC 621 [LNIND 1978 SC 382] [LNIND 1978 SC 382]
[LNIND 1978 SC 382]: (1979) 2 SCC 409: (1979) 118 ITR 326 [LNIND 1978 SC 382] [LNIND 1978 SC 382] [LNIND 1978 SC
382].

32 AIR 1989 Del 289 [LNIND 1989 DEL 238] [LNIND 1989 DEL 238] [LNIND 1989 DEL 238].

33 Great Eastern Shipping Co. Ltd. v. Union of India, AIR 1989 Del 289 [LNIND 1989 DEL 238] [LNIND 1989 DEL 238]
[LNIND 1989 DEL 238]at 297 : (1989) 2 DL 275.

34 AIR 1986 SC 1556 [LNIND 1986 SC 119] [LNIND 1986 SC 119] [LNIND 1986 SC 119]: (1986) 3 SCC 50.

35 Sales Tax Commissioner, U.P. v. Auriaya Chamber of Commerce, AIR 1986 SC 1556 [LNIND 1986 SC 119] [LNIND 1986
SC 119] [LNIND 1986 SC 119]: (1986) 3 SCC 50 : 1986 Tax LR 2396.

36 Municipal Commissioner, Thane v. H. and R. Johnson (India) Ltd., AIR 1996 SC 2703 [LNIND 1996 SC 1185] [LNIND 1996
SC 1185] [LNIND 1996 SC 1185]: (1996) 5 SCC 507. Also see, Shree Baidyanath Ayurved Bhawan Pvt. Ltd., v. State of Bihar,
AIR 1996 SC 2829 : (1996) 6 SCC 86 : JT 1996 (8) SC 177; see, infra; Laghu Udyog Bharati v. Union of India, (1999) 6 SCC
418 [LNIND 1999 SC 622] [LNIND 1999 SC 622] [LNIND 1999 SC 622] : AIR 1999 SC 2596 [LNIND 1999 SC 622] [LNIND
1999 SC 622] [LNIND 1999 SC 622].

37 Belapur Sugar and Allied Industries Ltd.l v. Collector of Control Excise, AIR, 1999 SC 1692: (1999) 4 SCC 103 [LNIND
1999 SC 402] [LNIND 1999 SC 402] [LNIND 1999 SC 402].

38 U.P. Pollution Control Board v. Kanoria Industrial Ltd., AIR 2001 SC 787 : (2001) 2 SCC 549 : 2001 (2) Mad LJ 36; also see,
infra.

39 For the reasons to refuse refund, see, infra.

40 Sales Tax Commissioner, U.P. v. Auriya Chamber of Commerce, AIR 1986 SC 1556 [LNIND 1986 SC 119] [LNIND 1986
SC 119] [LNIND 1986 SC 119]: (1986) 3 SCC 50.

41 Sales Tax Officer v. Budh Prakash Jai Prakash, AIR 1954 SC 459 [LNIND 1954 SC 82] [LNIND 1954 SC 82] [LNIND 1954
SC 82]: 1955 (1) SCR 243.

42 AIR 1959 SC 135 [LNIND 1958 SC 107] [LNIND 1958 SC 107] [LNIND 1958 SC 107]: 1959 SCR 1350.

43 S.T.O. v. Kanhaiyalal Mukund Lal Saraf, AIR 1959 SC 135 [LNIND 1958 SC 107] [LNIND 1958 SC 107] [LNIND 1958 SC
107]: (1958) 9 STC 747 : 1959 SCR 1350 [LNIND 1958 SC 107] [LNIND 1958 SC 107] [LNIND 1958 SC 107].

44 Also see, State of Orissa v. Khan Sahib Md. Khan, AIR 1961 SC 76.

45 State of Madhya Pradesh v. Bhailal Bhai, AIR 1964 SC 1006 [LNIND 1964 SC 7] [LNIND 1964 SC 7] [LNIND 1964 SC 7]at
1010 : (1964) 6 SCR 261 [LNIND 1964 SC 7] [LNIND 1964 SC 7] [LNIND 1964 SC 7]; Mahabir Kishore v. State of Madhya
Pradesh, AIR 1990 SC 313 [LNIND 1989 SC 362] [LNIND 1989 SC 362] [LNIND 1989 SC 362]: (1989) 4 SCC 1.

46 (1965) 16 STC 689 [LNIND 1965 KER 88] [LNIND 1965 KER 88] [LNIND 1965 KER 88], 692. Also see, infra, under 'Waiver.'

47 AIR 1976 SC 2243 [LNIND 1976 SC 51] [LNIND 1976 SC 51] [LNIND 1976 SC 51], 2250 : (1976) 4 SCC 723 [LNIND 1976
SC 51] [LNIND 1976 SC 51] [LNIND 1976 SC 51]; see, infra.

48 Shiba Prasad Singh v. Satish Chandra Nandi, AIR 1949 PC 297.

49 AIR 1991 SC 274. Also see, Nagar Mahapalika, Kanpur v. Sri Ram Mahadeo Prasad, AIR 1991 SC 274.

50 WADE, Administrative Law, 792 (1988). Also see, Morgan v. Palmer, (1824) 2 B&C 729;; Brockebank Ltd. v. R., (1925) 1
KB 52; Mason v. New South Wales, (1959) 102 CLR 108; Att. Gen. v. Wilts United Dairies Ltd., (1921) 37 TLR 884.

51 Shri Vallabh Glass Works Ltd., v. Union of India, AIR 1984 SC 971 [LNIND 1984 SC 72] [LNIND 1984 SC 72] [LNIND 1984
SC 72]at 974-75 : (1984) 3 SCC 362 [LNIND 1984 SC 72] [LNIND 1984 SC 72] [LNIND 1984 SC 72].

52 See, infra, under Statutory Provisions.

53 AIR 1979 SC 1144 : (1979) 4 SCC 176.

54 See, infra, for discussion on Art. 136 of the Constitution.

55 S.T.O. v. Kanhaiya Lal Mukund Lal Saraf, AIR 1959 SC 135 [LNIND 1958 SC 107] [LNIND 1958 SC 107] [LNIND 1958 SC
107]: (1958) 9 STC 747 : 1959 SCR 1350 [LNIND 1958 SC 107] [LNIND 1958 SC 107] [LNIND 1958 SC 107].

56 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996
SC 2186] : JT 1996 (11) SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].
 1420
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57 S.T.O. v. Kanhaiya Lal Mukund Lal Saraf, AIR 1959 SC 135 [LNIND 1958 SC 107] [LNIND 1958 SC 107] [LNIND 1958 SC
107]: (1958) 9 STC 787 : 1959 SCR 1350 [LNIND 1958 SC 107] [LNIND 1958 SC 107] [LNIND 1958 SC 107].

58 AIR 1975 SC 813 [LNIND 1974 SC 471] [LNIND 1974 SC 471] [LNIND 1974 SC 471]: (1975) 1 SCC 636.

59 Nawabganj Sugar Mills Ltd. v. Union of India, AIR 1976 SC 1152 [LNIND 1975 SC 343] [LNIND 1975 SC 343] [LNIND 1975
SC 343]: (1976) 1 SCC 120. Also see, infra.

60 Nawabgunj Sugar Mills Ltd. v. Union of India, AIR 1976 SC 1152 [LNIND 1975 SC 343] [LNIND 1975 SC 343] [LNIND 1975
SC 343]: (1976) 1 SCC 120 : 1976 (1) SCR 803 [LNIND 1975 SC 343] [LNIND 1975 SC 343] [LNIND 1975 SC 343].

61 Shiv Shankar Dal Mills v. State of Haryana, AIR 1980 SC 1037 [LNIND 1979 SC 444] [LNIND 1979 SC 444] [LNIND 1979
SC 444]: 1980, 437, SCC, (1980) 2 SCC 437 [LNIND 1979 SC 267] [LNIND 1979 SC 267] [LNIND 1979 SC 267]. Also see,
infra, under "Writ Jurisdiction of the High Courts.

62 The concept of distributive justice has been explained by the Supreme Court as follows: "Distributive justice comprehends
more than achieving lessening of inequalities by differential taxation, giving debt relief or distribution of property owned by one
to many who have none by imposing ceiling on holdings, both agricultural and urban, or by direct regulation of contractual
transactions, by forbidding certain transactions, and perhaps, by requiring others. It also means that those who have been
deprived of their properties by unconscionable bargaining should be restored their property.'' See, Lingappa Pochanna v. State
of Maharashtra, AIR 1985 SC 389 [LNIND 1984 SC 331] [LNIND 1984 SC 331] [LNIND 1984 SC 331]: (1985) 1 SCC 479.

63 See, infra, for a full-fledged discussion on Art. 226 of the Constitution.

64 AIR 1985 SC 883 [LNIND 1985 SC 45] [LNIND 1985 SC 45] [LNIND 1985 SC 45]: (1985) 2 SCC 16.

65 U.P. State Electricity Board Lucknow v. City Board, 'Mussoorie', AIR 1985 SC 883 [LNIND 1985 SC 45] [LNIND 1985 SC
45] [LNIND 1985 SC 45]: (1985) 2 SCC 16.

66 State of Madhya Pradesh v. Vyankatlal, AIR 1985 SC 901 [LNIND 1985 SC 107] [LNIND 1985 SC 107] [LNIND 1985 SC
107]: (1985) 2 SCC 544. A similar approach has been adopted in the case of entry tax in the following cases: Indian Aluminium
Co. Ltd., v. Thane Municipal Corp., 1992 Supp (1) SCC 480 [LNIND 1991 SC 492] [LNIND 1991 SC 492] : AIR 1992 SC 53
[LNIND 1991 SC 492] [LNIND 1991 SC 492] [LNIND 1991 SC 492]; Indian Oil Corp. v. Municipal Corp., (1993) 1 SCC 333
[LNIND 1992 SC 736] [LNIND 1992 SC 736] [LNIND 1992 SC 736] : AIR 1993 SC 844 [LNIND 1992 SC 736] [LNIND 1992 SC
736] [LNIND 1992 SC 736]: JT 1992 (6) SC 71; Entry Tax Officer v. Chandanmal Champalal & Co., (1994) 4SCC 463 : JT 1994
(3) SC 334.

67 AIR 1989 SC 1230 [LNIND 1989 SC 158] [LNIND 1989 SC 158] [LNIND 1989 SC 158]: (1989) 2 SCC 285.

68 Tata Engineering of Locomotive Co. Ltd., v. Municipal Corporation, Thane, AIR 1992 SC 645 [LNIND 1991 SC 629] [LNIND
1991 SC 629] [LNIND 1991 SC 629]: 1993 Supp (1) SCC 361.

69 Roplas (India) Ltd., v. Union of India, AIR 1989 Bom 183 [LNIND 1988 BOM 280] [LNIND 1988 BOM 280] [LNIND 1988
BOM 280].

70 AIR 1990 Bom 240.

71 New India Industries Ltd. v. Union of India, AIR 1990 Bom 239 [LNIND 1989 BOM 453] [LNIND 1989 BOM 453] [LNIND
1989 BOM 453]: (1990) Mad LJ 5 : 1990 (1) Bom CR 515 [LNIND 1989 BOM 453] [LNIND 1989 BOM 453] [LNIND 1989 BOM
453].

72 (1989) 4 SCC 640 [LNIND 1989 SC 488] [LNIND 1989 SC 488] [LNIND 1989 SC 488] : AIR 1990 SC 47 [LNIND 1989 SC
488] [LNIND 1989 SC 488] [LNIND 1989 SC 488]: JT 1980 (4) SC 147. Also see, State of Rajasthan v. Hindustan Copper Ltd.,
(1998) 9 SCC 708; Bhadrachalam Paperboards Ltd. v. Govt. of A.P., (1998) 6 SCC 250 [LNIND 1998 SC 702] [LNIND 1998
SC 702] [LNIND 1998 SC 702] : AIR 1998 SC 2634 [LNIND 1998 SC 702] [LNIND 1998 SC 702] [LNIND 1998 SC 702]: JT
1998 (2) SC 314.

73 Infra.

74 Chapters XXX and XXXI.

75 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996
SC 2186] : JT 1996 (11) SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].

76 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996
SC 2186] : JT 1996 (11) SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].

77 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996
SC 2186] : JT 1996 (11) SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186]. Also see, Amar Nath
Om Prakash v. State of Punjab, AIR 1985 SC 218 [LNIND 1984 SC 427] [LNIND 1984 SC 427] [LNIND 1984 SC 427]: (1985) 1
SCC 345 : 1985 (1) Cur CC 547.
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78 In Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996
SC 2186] : JT 1996 (11) SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186],

79 Also see, Union of India v. Solar pesticides Pvt. Ltd., (2000) 2 SCC 705 [LNIND 2000 SC 242] [LNIND 2000 SC 242]
[LNIND 2000 SC 242] : AIR 2000 SC 862 [LNIND 2000 SC 242] [LNIND 2000 SC 242] [LNIND 2000 SC 242]: JT 2000 (1) SC
577.

80 S.T.O. v. Kanhaiya Lal Mukundlal Saraf, AIR 1959 SC 135 [LNIND 1958 SC 107] [LNIND 1958 SC 107] [LNIND 1958 SC
107]: (1958) 9 STC 787 : 1959 SCR 1350 [LNIND 1958 SC 107] [LNIND 1958 SC 107] [LNIND 1958 SC 107].

81 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996
SC 2186] : (1997) 1 Supreme 684.

82 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 : (1997) 1 Supreme 684.

83 Shree Digvijay Cement Co. Ltd. v. Union of India, (2003) 2 SCC 614 [LNIND 2002 SC 816] [LNIND 2002 SC 816] [LNIND
2002 SC 816], at 627 : AIR 2003 SC 767 [LNIND 2002 SC 816] [LNIND 2002 SC 816] [LNIND 2002 SC 816]: (2003) 259 ITR
705.

84 Shree Digvijay Cement Co Ltd. v. Union of India, (2003) 2 SCC 614 [LNIND 2002 SC 816] [LNIND 2002 SC 816] [LNIND
2002 SC 816], 627 : AIR 2003 SC 767 [LNIND 2002 SC 816] [LNIND 2002 SC 816] [LNIND 2002 SC 816]: (2003) 259 ITR
705.

85 Burmah Construction Co. v. State of Orissa, AIR 1962 SC 1320 [LNIND 1961 SC 341] [LNIND 1961 SC 341] [LNIND 1961
SC 341]: (1961) 12 STC 816.

86 AIR 1961 SC 1438 [LNIND 1961 SC 132] [LNIND 1961 SC 132] [LNIND 1961 SC 132]: 1962 (1) SCR 549.

87 Orient Paper Mills+ v. State of Orissa, AIR 1961 SC 1438 [LNIND 1961 SC 132] [LNIND 1961 SC 132] [LNIND 1961 SC
132]at 1440: 1962 (1) SCR 549 [LNIND 1961 SC 132] [LNIND 1961 SC 132] [LNIND 1961 SC 132] : (1961) 12 ST 357 : 1961
(2) SCJ 610.

88 AIR 1964 SC 922 [LNIND 1964 SC 47] [LNIND 1964 SC 47] [LNIND 1964 SC 47]: 1964 (6) SCR 867.

89 Also see, Kantilal Babulal v. Patel, AIR 1968 SC 445 [LNIND 1967 SC 288] [LNIND 1967 SC 288] [LNIND 1967 SC 288]:
1968 (1) SCR 735;; Ashoka Marketing v. Stete of Bihar, AIR 1971 SC 946 [LNIND 1970 SC 19] [LNIND 1970 SC 19] [LNIND
1970 SC 19]: (1970) 1 SCC 354.

90 Entry 54, List II, runs as follows: "Taxes on the sale or purchase of goods . . .''

91 Abdul Quadir v. S.T.O., AIR 1964 SC 922 [LNIND 1964 SC 47] [LNIND 1964 SC 47] [LNIND 1964 SC 47]: 1964 (6) SCR
867; Kantilal Babulal v. Patel, AIR 1968 SC 445 [LNIND 1967 SC 288] [LNIND 1967 SC 288] [LNIND 1967 SC 288]: 1968 (1)
SCR 735; Ashok Marketing v. State of Bihar, AIR 1971 SC 946 [LNIND 1970 SC 19] [LNIND 1970 SC 19] [LNIND 1970 SC
19]: (1970) 26 STC 254.

92 AIR 1977 SC 2279 [LNIND 1977 SC 260] [LNIND 1977 SC 260] [LNIND 1977 SC 260]: (1977) 4 SCC 98.

93 Amar Nath Om Prakash v. State of Punjab, AIR 1985 SC 218 [LNIND 1984 SC 427] [LNIND 1984 SC 427] [LNIND 1984 SC
427]: (1985) 1 SCC 345.

94 Orient Paper Mills v. State of Orissa, AIR 1961 SC 1438 [LNIND 1961 SC 132] [LNIND 1961 SC 132] [LNIND 1961 SC
132]: 1962 (1) SCR 549: (1961) 12 STC 357 : 1961 (2) SCJ 610.

95 AIR 1965 SC 555 [LNIND 1964 SC 174] [LNIND 1964 SC 174] [LNIND 1964 SC 174]: 1964 (8) SCR 178.

96 To the same effect is: Firm Surajmal Bansidhar v. Gangadhar Municipality, AIR 1979 SC 246 [LNIND 1978 SC 303] [LNIND
1978 SC 303] [LNIND 1978 SC 303], 247 : (1979) 1 SCC 303 [LNIND 1978 SC 303] [LNIND 1978 SC 303] [LNIND 1978 SC
303].

1 AIR 1993 SC 2135, 2144: 1993 Supp (4) SCC 326 : JT 1993 (4) SC 250. Also see, Union of India v. Jain Spinners Ltd., AIR
1992 SC 1993 : (1992) 4 SCC 389.

2 A.K. Roy v. Voltas Ltd., AIR 1973 SC 225 [LNIND 1972 SC 564] [LNIND 1972 SC 564] [LNIND 1972 SC 564]: (1973) 3 SCC
503.

3 For discussion on 'Mandamus', see, infra.

4 Mafatlal Industries Ltd. v. ### (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186], at
614 : JT 1996 (11) SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].

5 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC
2186] : JT 1996 (11) SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].
 1422
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6 For this aspect, see, infra, Chapter under Civil Suits. The clauses barring jurisdiction of courts are known as "Privative
clauses''. For a full discussion on the impact of such clauses, see, infra.

7 For discussion on Art. 265, see, supra.

8 For discussion on this provision, see, supra.

9 (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186], 607 : JT 1996 (11) SC 283 [LNIND
1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].

10 For discussion on these constitutional provisions see, infra, Ch..

11 (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] at 607.

12 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996
SC 2186] : JT 1996 (11) SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].

13 SRF Ltd. v. Asstt. Collector of Central Excise, Trichy, (2002) 1 SCC 480 : AIR 2002 SC 98 : JT 2001 (9) SC 485.

14 AIR 1971 SC 57 [LNIND 1970 SC 67] [LNIND 1970 SC 67] [LNIND 1970 SC 67]: (1970) 1 SCC 509. Also see, State of
Tamil Nadu, v. M. Rayappa Gounder, AIR 1971 SC 231 [LNIND 2011 MAD 1729] [LNIND 2011 MAD 1729] [LNIND 2011 MAD
1729]: (1971) 3 SCC 1.

15 AIR 1970 SC 192 [LNIND 1969 SC 188] [LNIND 1969 SC 188] [LNIND 1969 SC 188]: (1969) 2 SCC 283: (1971) 79 ITR
136 [LNIND 1969 SC 188] [LNIND 1969 SC 188] [LNIND 1969 SC 188]. Also see, I.N. Saxena v. State of Madhya Pradesh,
AIR 1976 SC 2250 [LNIND 1976 SC 25] [LNIND 1976 SC 25] [LNIND 1976 SC 25]: (1976) (2) LLJ 154: (1976) 4 SCC 750
[LNIND 1976 SC 25] [LNIND 1976 SC 25] [LNIND 1976 SC 25].

16 AIR 1970 SC 192 [LNIND 1969 SC 188] [LNIND 1969 SC 188] [LNIND 1969 SC 188]: (1969) 2 SCC 283: (1971) 79 ITR
136 [LNIND 1969 SC 188] [LNIND 1969 SC 188] [LNIND 1969 SC 188].

17 Validating statutes have been hold valid in the following cases: State of Orissa v. Oriental Paper Mills Ltd., AIR 1961 SC
1438 [LNIND 1961 SC 132] [LNIND 1961 SC 132] [LNIND 1961 SC 132]: 1962 (1) SCR 549; Misrilal Jain v. State of Orissa,
AIR 1977 SC 1686 [LNIND 1977 SC 202] [LNIND 1977 SC 202] [LNIND 1977 SC 202]: (1977) 3 SCC 212;

18 AIR 2001 SC 1885 [LNIND 2001 SC 862] [LNIND 2001 SC 862] [LNIND 2001 SC 862]: (2001) 4 SCC 227 : JT 2001 (4) SC
497 [LNIND 2001 SC 862] [LNIND 2001 SC 862] [LNIND 2001 SC 862].

19 B. Krishna Bhatt v. State of Karnataka, AIR 2001 SC 1885 [LNIND 2001 SC 862] [LNIND 2001 SC 862] [LNIND 2001 SC
862]: (2001) 4 SCC 227 : JT 2001 (4) SC 497 [LNIND 2001 SC 862] [LNIND 2001 SC 862] [LNIND 2001 SC 862].

20 Venkataraman & Co. v. State of Madras, AIR 1966 SC 1089 [LNIND 1965 SC 262] [LNIND 1965 SC 262] [LNIND 1965 SC
262], at 1094 : (1966) (2) SCR 229 [LNIND 1965 SC 262] [LNIND 1965 SC 262] [LNIND 1965 SC 262]. Also see, Mafatlal
Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] : JT
1996 (11) SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].

21 For discussion on S. 9, CPC, see, infra, under "Statutory Judicial Remedies".

22 See, infra, under Statutory Judicial Remedies.

23 For discussion on Art. 226 of the Constitution, see, infra, Chapter .

24 For discussion on Art. 32 of the Constitution, see, infra, Chapter .

25 AIR 1984 SC 971 [LNIND 1984 SC 72] [LNIND 1984 SC 72] [LNIND 1984 SC 72]: (1984) 3 SCC 362 : (1985) 115 ITR 560.

26 See, Infra, Chapter.

27 See, infra, Chapter.

28 Salonah Tea Co. v. Supdt. of Taxes, Nowgong, AIR 1990 SC 772 [LNIND 1987 SC 865] [LNIND 1987 SC 865] [LNIND
1987 SC 865]at 775 : (1988) 1 SCC 401 [LNIND 1987 SC 865] [LNIND 1987 SC 865] [LNIND 1987 SC 865] : JT 1987 (4) SC
714.

29 For discussion on Mandamus, see, infra, Chapter .

30 Salonath Tea Co. v. Supdt. of Taxes, Nowgong, AIR 1990 SC 772 [LNIND 1987 SC 865] [LNIND 1987 SC 865] [LNIND
1987 SC 865]at 775 : (1988) 1 SCC 401 [LNIND 1987 SC 865] [LNIND 1987 SC 865] [LNIND 1987 SC 865] : JT 1987 (4) SC
714.

31 For further discussion on this point, see, under Exhaustion of Remedies, infra, Chapter .
 1423
Page 370

32 For civil suits, see, supra,

33 AIR 1965 SC 1740 : (1965) 56 ITR 84.

34 Sugan Mal v. State of Mahdya Pradesh, AIR 1965 SC 1740 : (1965) 56 ITR 84 : (1965) 16 STC 398.

35 D. Cawasji & Co. v. State of Mysore, AIR 1975 SC 813 [LNIND 1974 SC 471] [LNIND 1974 SC 471] [LNIND 1974 SC 471]:
(1975) 1 SCC 636. Also see, infra.

36 On Limitation, see, infra, under "Writ Jurisdiction".

37 D. Cawasji & Co. v. State of Mysore, AIR 1975 SC 813 [LNIND 1974 SC 471] [LNIND 1974 SC 471] [LNIND 1974 SC 471]:
1975 (2) SCR 511 : (1975) 1 SCC 636 [LNIND 1974 SC 471] [LNIND 1974 SC 471] [LNIND 1974 SC 471].

38 Sugnamal v. State of Madhya Pradesh, AIR 1965 SC 1740 : (1965) 16 STC 398.

39 AIR 1964 SC 1006 [LNIND 1964 SC 7] [LNIND 1964 SC 7] [LNIND 1964 SC 7], 1011: 1964 (6).

40 AIR 1959 SC 135 [LNIND 1958 SC 107] [LNIND 1958 SC 107] [LNIND 1958 SC 107]: 1959 SCR 1350.

41 AIR 1990 SC 772 [LNIND 1987 SC 865] [LNIND 1987 SC 865] [LNIND 1987 SC 865], 775 : JT 1987 (4) SC 714 : (1988) 69
STC 290.

42 Also see, Karnataka Bank Ltd. v. Asstt. Profession Tax Officer, AIR 1989 Kant 204.

43 Salonath Tea Co. v. Superintendent of Taxes, Nowgong, AIR 1990 SC 772 [LNIND 1987 SC 865] [LNIND 1987 SC 865]
[LNIND 1987 SC 865]at 775 : (1988) 1 SCC 401 [LNIND 1987 SC 865] [LNIND 1987 SC 865] [LNIND 1987 SC 865].

44 For discussion on Art. 226, see infra.

45 U.P. Pollution Control Board v. Kanoria Industrial Ltd. AIR 2001 SC 787 : (2001) 2 SCC 549 : 2001 (2) Mad LJ 36.

46 Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P) Ltd. v. Union of India, AIR 1963 SC 622 [LNIND 1962 SC 291]
[LNIND 1962 SC 291] [LNIND 1962 SC 291]: 1963 (3) SCR 957.

47 Shree Baidyanath Ayurved Bhawan Pvt. Ltd. v. State of Bihar, AIR 1996 SC 2829: (1996) 6 SCC 86 : JT 1996 (8) SC 177.

48 See, infra, under Limitation; also, infra, Chapter for further discussion on this point.

49 For discussion on these various issues, see, infra, Chapter.

50 AIR 1964 SC 1006 [LNIND 1964 SC 7] [LNIND 1964 SC 7] [LNIND 1964 SC 7]at 1011 : 1964 (6) SCR 261 [LNIND 1964 SC
7] [LNIND 1964 SC 7] [LNIND 1964 SC 7].

51 Orissa Cement Ltd. v. State of Orissa, AIR 1991 SC 1676 [LNIND 1991 SC 190] [LNIND 1991 SC 190] [LNIND 1991 SC
190]: JT 1991 (2) SC 439, see, infra.

52 AIR 1976 SC 2243 [LNIND 1976 SC 51] [LNIND 1976 SC 51] [LNIND 1976 SC 51]: (1976) 4 SCC 723.

53 Municipal Corporation of Greater Bombay v. Advance Builders (India) Pvt. Ltd., AIR 1972 SC 793 [LNIND 1971 SC 411]
[LNIND 1971 SC 411] [LNIND 1971 SC 411], 800 : (1971) 3 SCC 381 [LNIND 1971 SC 411] [LNIND 1971 SC 411] [LNIND
1971 SC 411]; D. Cawasji & Co. v. State of Mysore, AIR 1975 SC 813 [LNIND 1974 SC 471] [LNIND 1974 SC 471] [LNIND
1974 SC 471]: (1975) 1 SCC 636. For further discussion on this point, see, infra, Chapter.

54 AIR 1976 SC 2243 [LNIND 1976 SC 51] [LNIND 1976 SC 51] [LNIND 1976 SC 51]at 2249 : (1976) 4 SCC 723 [LNIND 1976
SC 51] [LNIND 1976 SC 51] [LNIND 1976 SC 51].

55 See, supra, under S. 72, Contract Act.

56 State of Kerala v. K.P. Govindan Tapioca Exporter, AIR 1975 SC 152 [LNIND 1974 SC 354] [LNIND 1974 SC 354] [LNIND
1974 SC 354]: (1975) 1 SCC 281; see, supra.

57 H.R.S. Murthy v. Collector of Chittoor, AIR 1965 SC 177 [LNIND 1964 SC 32] [LNIND 1964 SC 32] [LNIND 1964 SC 32]:
1964 (6) SCR 666.

58 AIR 1990 SC 85 [LNIND 1989 SC 686] [LNIND 1989 SC 686] [LNIND 1989 SC 686]: (1990) 1 SCC 12.

59 On the Scheme of distribution of powers between the Centre and the States, see, JAIN, Indian Constitutional Law, Chapter
X.

60 On the doctrine of prospective overruling see, JAIN, Indian Constitutional Law, 1858-1862.

61 AIR 1990 SC 85 [LNIND 1989 SC 686] [LNIND 1989 SC 686] [LNIND 1989 SC 686]at 97 : (1990) 1 SCC 12 [LNIND 1989
 1424
Page 371

SC 686] [LNIND 1989 SC 686] [LNIND 1989 SC 686].

62 AIR 1991 SC 1676 [LNIND 1991 SC 190] [LNIND 1991 SC 190] [LNIND 1991 SC 190]: 1991 Supp (1) SCC 430.

63 Orissa Cement Ltd. v. State of Orissa, AIR 1991 SC 1676 [LNIND 1991 SC 190] [LNIND 1991 SC 190] [LNIND 1991 SC
190]at 1717: 1991 Supp (1) SCC 430.

64 On 'Moulding of Relief in a Writ Petition', see, infra, Chapter .

65 State of Madhya Pradesh v. Bhailal Bhai, AIR 1964 SC 1006 [LNIND 1964 SC 7] [LNIND 1964 SC 7] [LNIND 1964 SC 7]:
(1964) 6 SCR 261. Also, Tilokchand Motichand v. H.B. Munshi, AIR 1970 SC 898 [LNIND 1968 SC 353] [LNIND 1968 SC 353]
[LNIND 1968 SC 353]: (1969) 1 SCC 111. For further discussion on this case; Ramchandra Shankar Deodhar v. State of
Maharashtra, AIR 1974 SC 259 [LNIND 1973 SC 329] [LNIND 1973 SC 329] [LNIND 1973 SC 329]: 1974 (1) LLJ 221 : (1974)
1 SCC 317 [LNIND 1973 SC 329] [LNIND 1973 SC 329] [LNIND 1973 SC 329]; Shri Vallabh Glass Works Ltd. v. Union of
India, 1 AIR 1984 SC 97 : (1984) 3 SCC 362; State of Madhya Pradesh v. Nandlal Jaiswal, AIR 1987 SC 251 [LNIND 1986
SC 400] [LNIND 1986 SC 400] [LNIND 1986 SC 400]: (1986) 4 SCC 566; D. Cawasji & Co. v. State of Mysore, AIR 1975 SC
813 [LNIND 1974 SC 471] [LNIND 1974 SC 471] [LNIND 1974 SC 471]: 1975 (2) SCR 511.

66 AIR 1991 SC 1676 [LNIND 1991 SC 190] [LNIND 1991 SC 190] [LNIND 1991 SC 190]at 1720: 1991 Supp (1) SCC 430.

67 See, supra, under Unjust Enrichment. Also see, infra, Chapters for further discussion on this point.

68 (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] at 614: JT 1996 (11) SC 283
[LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].

69 Koluthara Exports Ltd. v. State of Kerala, (2002) 2 SCC 459 [LNIND 2002 SC 92] [LNIND 2002 SC 92] [LNIND 2002 SC
92], at 467 : AIR 2002 SC 973 [LNIND 2002 SC 92] [LNIND 2002 SC 92] [LNIND 2002 SC 92].

70 U.P. Pollution Control Board v. Kanoria Industries Ltd., AIR 2001 SC 787 : (2001) 2 SCC 549.

71 Khurai Municipality v. Kamal Kumar, AIR 1965 SC 1321 [LNIND 1964 SC 358] [LNIND 1964 SC 358] [LNIND 1964 SC
358]: 1965 (2) SCR 653.

72 Mafatlal, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] at 606-607 : 1996 (11)
JT SC 283.

73 Venkataraman & Co. v. State of Madras, AIR 1966 SC 1089 [LNIND 1965 SC 262] [LNIND 1965 SC 262] [LNIND 1965 SC
262], 1100 : 1966 (2) SCR 229 [LNIND 1965 SC 262] [LNIND 1965 SC 262] [LNIND 1965 SC 262];; Sales Tax Commr., U.P. v.
Auriaya Chamber of Commerce, AIR 1986 SC 1556 [LNIND 1986 SC 119] [LNIND 1986 SC 119] [LNIND 1986 SC 119], 1563:
(1986) 3 SCC 50 [LNIND 1986 SC 119] [LNIND 1986 SC 119] [LNIND 1986 SC 119]; supra, Mahabir Kishore v. . State of
Madhya Pradesh, AIR 1990 SC 313 [LNIND 1989 SC 362] [LNIND 1989 SC 362] [LNIND 1989 SC 362]: (1989) 4 SCC 1.

74 AIR 1975 SC 813 [LNIND 1974 SC 471] [LNIND 1974 SC 471] [LNIND 1974 SC 471]: (1975) 1 SCC 636.

75 Cawasji & Co. v. State of Mysore, AIR 1975 SC 813 [LNIND 1974 SC 471] [LNIND 1974 SC 471] [LNIND 1974 SC 471]:
(1975) 1 SCC 636.

76 For discussion on this point, see, the Chapter under "Laches".

77 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996
SC 2186] : (1997) 1 Supreme 684 : JT (1996) 11 SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC
2186].

78 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996
SC 2186]: 1 Supreme 684(1997) : JT (1996) 11 SC 283 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].

79 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 : (1997) 1 Supreme 684 : JT (1996) 11 SC 283 [LNIND 1996
SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].

80 (1997) 5 SCC 536 [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186] at 611 : JT 1996 (11) SC 283
[LNIND 1996 SC 2186] [LNIND 1996 SC 2186] [LNIND 1996 SC 2186].

81 Orissa Cement Ltd v. State of Orissa, AIR 1991 SC 1676 [LNIND 1991 SC 190] [LNIND 1991 SC 190] [LNIND 1991 SC
190]at 1718 : 1991 Supp (1) SCC 430.

82 Orient Paper Mills v. State of Orissa, AIR 1961 SC 1438 [LNIND 1961 SC 132] [LNIND 1961 SC 132] [LNIND 1961 SC
132]: 1962 (1) SCR 549.

83 AIR 1962 SC 1320 [LNIND 1961 SC 341] [LNIND 1961 SC 341] [LNIND 1961 SC 341]: 1962 (2) SCJ 148.

84 Gannon Dunkerley & Co. Ltd., v. State of Madras, AIR 1954 Mad 1130 [LNIND 1954 MAD 101] [LNIND 1954 MAD 101]
[LNIND 1954 MAD 101]; confirmed by the Supreme Court in State of Madras v. Gannon Dunkerley & Co. Ltd., AIR 1958 SC