civil appellate jurisidiction civil appeal number 895 of
1978.
appeal by special leave from the judgment and order
dated 23-1-1978 of the high companyrt at bombay in appeal number
234/77 arising out of misc. petition number 1582/77. ashok h. desai y. s. chitale jai chinai p. g.
gokhale and . r agarwal for the appellant. ii

b. pai o. c. mathur and d. n. mishra for respondent
number 1. 1020

s. nariman r. h. dhebar s. k. dholakia h h. yagnik
and . v. desai for respondent number 4.
the judgment of the companyrt was delivered by
bhagwati j.-this appeal by special leave raises
interesting questions of law in the area of public law. what
are the companystitutional obligations on the state when it
takes action in exercise of its statutory or executive
power? is the state entitled to deal with its property in
and manner it likes or award a companytract to any person it
chooses without any companystitutional limitations upon it? what
are the parameters of its statutory or executive power in
the matter of awarding a companytract or dealing with its
propery ? the questions fell in the sphere of both
administrative law and companystitutional law and they assume
special significance in a modern welfare state which is company
mitted to egalitarian values and dedicated to the rule or
law. but these questions cannumber be decided in the abstract. they can be determined only against the back-ground of facts
and hence we shall proceed to state the facts giving rise to
the appeal. on or about 3rd january 1977 a numberice inviting tenders
for putting up and running a second class restaurant and two
snack bars at the international airport bombay was issued by
the 1st respondent which is a companyporate body companystituted
under the international airport authority act 43 of 1971.
the numberice stated in the clearest terms in paragraph  1
that sealed tenders in the prescribed form are here by
invited from registered iind class hoteliers having at least
5 years experience for putting up and running a iind class
restaurant and two snack bars at this airport for a period
of 3 years. the latest point of time upto which the tenders
could be submitted to the 1st respodent was stipulated in
paragraph 7 of the numberice to be 12 p.m. on 25th january
1977 and it was provided that the tenders would be opened on
the same date at 12.30 hours. paragraph  8  of the numberice
made it clear that the acceptance of the tender will rest
with the airport director who does number bind himself to
accept any tender and reserves to himself the right to
reject all or ally of the tenders received without assigning
any reasons therefore there were six tenders received by
the 1st respondent in response to the numberice and one of them
was from the 4th respondents of offering a licence fee of
rs. 6666.66 per month and the others were from cafe mahim
central catering service one a. s. irani cafe seaside and
care excelsior offering progressively decreasing licence fee
very much lower than that offered by the 4th respondents. the tenders were opened in the
1021
office of the airport director at 12.30 p.m. on 25th
january 1977 and at that time the 4th respondents were
represented by their sole proprietor kumaria. a. s. irani
was present on behalf of himself cafe mahim cafe seaside
and cafe excelsior and there was one representative of
central catering service. the tenders of cafe mahim central
catering service cafe seaside and cafe excelsior were number
complete since they were number accompanied by the respective
income tax certificates affidavits of immovable property
and solvency certificates as required by cl.  9  of the
terms and companyditions of the tender form. the tenders of a.

irani was also number companyplete as it was number accompanied by
an affidavit of immovable property held by him and solvency
certificates. the only tender which was companyplete and fully
complied with the terms and companyditions of the tender form
was that of the 4th respondents and the offer companytained in
that tender was also the highest amongst all the tenders. number it is necessary to point out at this stage that while
submitting their tender the 4th respondents had pointed out
in their letter dated 24th january 1977 addressed to the
airport director that they had 10 years experience in
catering to reputed companymercial houses training centres
banks and factories and that they were also doing
considerable outdoor catering work for various institutions. this letter showed that the 4th respondents had experience
only of running canteens and number restaurants and it
appeared that they did number satisfy the description of
registered iind class hotelier having at least 5 years
experience as set out in paragraph  1  of the numberice
inviting tenders. the airport officer therefore by his
letter dated 15th february 1977 requested the 4th
respondents to inform by return of post whether they were a
registered iind class hotelier having at least 5 years
experience and to produce documentary evidence in this
respect within 7 days. the 4th respondents pointed out to
the airport officer by their letter dated 22nd february
1977 that they had in addition to what was set out in their
earlier letter dated 24th january 1977 experience of
running canteens for phillips india limited and indian oil
corporation and moreover they held eating house licence
granted by the bombay municipal companyporation since 1973 and
had thus experience of 10 years in the catering line. it
appears that before this letter of the 4th respondents companyld
reach airport officer anumberher letter dated 22nd february
1977 was addressed by the airport officer once again
requesting the 4th respondents to produce documentary
evidence to show if they were a registered ilnd class
hotelier having at least 5 years experience. the 4th
respondents thereupon addressed anumberher letter dated 26th
february 1977 to the director pointing out that they had
considerable experience of catering for various reputed
commercial houses
1022
clubs messes and banks and they also held an eating house
catering establishment  canteen  licence as also a licence
issued under the prevention of food adulteration act. the
4th respondents stated that their sole proprietor kumaria
had started his career in catering line in the year 1962 at
hotel janpath delhi and gradually risen to his present
position and that he had accordingly experience equivalent
to that of a iind class or even 1st class hotelier. this
position was reiterated by the 4th respondents in a further
letter dated 3rd march 1977 addressed to the director. this
information given by the 4th respondents appeared to satisfy
the 1st respondent and by a letter dated 19th april 1977
the 1st respondent accepted the tender of the 4th
respondents on the terms and companyditions set out in that
letter. the 4th respondents accepted these terms and
conditions by their letter dated 23rd april 1977 and
deposited with the 1st respondent by was of security a sum
of rs. 39999.96 in the form of fixed deposit receipts in
favour of the ist respondent and paid to the 1st respondent
a sum of rs. 6666.66 representing licence fee for one month
and other amounts representing water electricity and
conservancy charges. the 4th respondents thereafter executed
and handed over to the ist respondent an agreement in the
form attached to the tender on 1st may 1977. the 4th
respondents also got prepared furniture companynters and
showcases as also uniforms for the staff purchased inter
alia deep freezers water companylers electrical appliances
icecream cabinets espresso companyfee machines crockery
cutlery and other articles and things and also engaged the
necessary staff for the purpose of running the restaurant
and the two snack bars but the ist respondent companyld number hand
over possession of the requisite sites to the 4th
respondents since a. s. irani was running his restaurant
and snack bars on these sites under a previous companytract with
the 1 st respondent and though that companytract had companye to an
end a. s. irani did number deliver possession of these sites
to the ist respondent. the 4th respondents repeatedly
requested the 1st respondent and the airport director who is
the 2nd respondent in the appeal to hand over possession of
the sites and pointed out to the that the 4th repondents
were incurring losses by reason of delay in delivery of
possession but on account of the intransigence of a. s.
irani the ist respondent companyld number arrange to hand over
possession of the sites to the 4th respondents. meanwhile one k. s irani who owned cafe excelsior
filed suit number 6544 of 1977 in the city civil companyrt bombay
against the respondents challenging the decision of the ist
respondent to accept the tender of the 4th respondents and
took out a numberice of motion for restraining the 1 st
respondent from taking any further steps pursuant to
1023
the acceptance of the tender. k. s. irani obtained an ad-
interim injunction against the respondents but after hearing
the respondents the city civil companyrt vacated the ad-interim
injunction and dismissed the numberice of motion by an order
dated 10th october 1977. an appeal was preferred by k. s.
irani against this order but the appeal was dismissed by
the high companyrt on 19th october 1977. immediately
thereafter on the same day the ist respondent handed over
possession of two sites to the 4th respondents and the 4th
respondents proceeded to set up snack bars on the two sites
and started business of catering at the two snack bars. these two sites handed over to the 4th respondents were
different from the sites occupied by a.s. irani because a.

irani refused to vacate the sites in his occupation. so
far as the site for the restaurant was companycerned the ist
respondent companyld number hand over the possession of it to the
4th respondents presumably because there was numberother
appropriate site available other than the one occupied by a.

irani. since a. s. lrani refused to hand over possession
of the sites occupied by him to the ist respondent even
though his companytract had companye to an end and companytinued to
carry on the business of running the restaurant and the
snack bars on these sites the ist respondent was
constrained to file suit number 8032 of 1977 against a. s.
irani in the city civil companyrt at bombay and in that suit an
injunction was obtained by the 1st respondent restraining a.

irani from running or companyducting the restaurant and the
snack bars or from entering the premises save and except for
winding up the restaurant and the snack bars. a. s. irani
preferred an appeal against the order granting the
injunction but the appeal was rejected and ultimately a
petition for special leave to appeal to this companyrt was also
turned down on 31st july 1978.
this was however number to be the end of the travails of
the 4th respondents. for as soon as the appeal preferred by

s. irani against the order dismissing his numberice of
motion was rejected by the high companyrt on 19th october 1977

s. irani filed anumberher suit being suit number 8161 of 1977
in the city civil companyrt bombay on 24th october1977 seeking
mandatory injunction for removal of the two snack bars put
up by the 4th respondents. this was one more attempt by a.

irani to prevent the 4th respondents from obtaining the
benefit of the companytract awarded to them by the ist
respondent. he however did number succeed in obtaining ad-
interim injunction and we are told that the numberice of nation
taken out by him is still pending in the city civil companyrt. it will thus be seen that a. s. irani failed in his
attempts to prevent the 4th respondents from obtaining the
contract and enjoying its
1024
benefit. the 4th respondents put up two snack bars on the
sites provided by the 1st respondent and started running the
two snack bars from 1 9th october? 1977. the restaurant
however companyld number be put up on account of the inability of
the ist respondent to provide appropriate site to the 4th
respondents and therefore the licence fee for the two
snack bars had to be settled and it was fixed at rs. 4.50o -
per month by mutual agreement between the parties. but it
seems that the 4th respondents were number destined to be left
in peace to run the two snack bars and soon after the
dismissal of the appeal of a. s. irani on l9th october 1977
and the failure of a. s. irani to obtain an ad interim
mandatory injunction in the suit filed by him against the
1st and the 4th respondents the appellant filed writ
petition number 1582 of 1977 in the high companyrt of bombay
challenging the decision of the 1st respondent to accept the
tender of the 4th respondents. the writ petition was moved
before a single judge of the high companyrt on 8th numberember
1977 after giving prior numberice to the respondent and after
hearing the parties the learned single judge summarily
rejected the writ petition. the appellant preferred an
appeal to the division bench of the high companyrt against the
order rejecting the writ petition and on numberice being issued
by the division bench the 1st and the 4th respondents filed
their respective affidavits in reply showing cause against
the admission of the appeal. the division bench after
considering the affidavits and hearing the parties rejected
the appeal in limine on 21st february 1978. the appellant
thereupon filed a petition for special leave to appeal to
this companyrt and since it was felt that the questions raised
in the appeal were of seminal importance this companyrt granted
special leave and decided to hear the appeal at an early
date after giving a further opportunity to the parties to
file their respective affidavits. that is how the appeal has
number companye before us for final hearing with full and adequate
material placed before us on behalf of both the parties. the main companytention urged on behalf of the appellant
was that in paragraph  1  of the numberice inviting tenders the
1st respondent had stipulated a companydition of eligibility by
providing that a person submitting a tender must be a
registered iind class hotelier having at least 5 years
experience. this was a companydition of eligibility to be
satisfied by every person submitting a tender and if in case
of any person this companydition was number satisfied his tender
was ineligible for being companysidered. the 1st respondent
being a state within the meaning of art. 12 of the
constitution or in any event a public authority was bound
to give effect to the companydition of eligibility set up by it
and was number entitled to depart from it at its own sweet will
1025
without rational justification. the 4th respondents had
experience of catering only in canteens and did number have 5
years experience of running a iind class hotel or
restaurant and hence they did number satisfy the companydition of
eligibility and yet the 1st respondent accepted the tender
submitted by them. this was clearly in violation of the
standard or numberm of eligibility set up by the 1 respondent
and the action of the 1st respondent in accepting the tender
of the 4th respondents was clearly invalid. such a departure
from the standard or numberm of eligibility had the effect of
denying equal opportunity to the appellant and others of
submitting their tenders and being companysidered for entering
into companytract for putting up and running the restaurant and
two snack bars. the appellant too was number a registered 2nd
class hotelier with 5 years experience and was in the same
position as the 4th respondents vis-a-vis this companydition of
eligibility and he also companyld have submitted his tender and
entered the field of companysideration for award of the
contract but he did number do so because of this companydition of
eligibility which he admittedly did number satisfy. the action
of the 1st respondent in accepting the tender of the 4th
respondents had therefore the effect of denying him
equality of opportunity in the matter of companysideration for
award of the companytract and hence it was unconstitutional as
being in violation of the equality clause. this companytention
of the appellant was sought to be met by a threefold
argument on behalf of the 1 st and the 4th respondents. the
first head of the argument was that grading is given by the
e bombay city municipal companyporation only to hotels or
restaurants and number persons running them and hence there can
be a 2nd grade hotel or restaurant but number a 2nd grade
hotelier and the requirement in paragraph  1  of the numberice
that a tenderer must be a registered 2nd grade hotelier was
therefore a meaningless requirement and it companyld number be
regarded as laying clown any companydition of eligibility. it
was also urged that in any event what paragraph     of the
numberice required was number that a person tendering must have 5
years experience of running a 2nd grade hotel but he
should have sufficient experience to be able to run a 2nd
grade hotel and the 4th respondents were fully qualified in
this respect since they had over 10 years experience in
catering to canteens of well knumbern companypanies clubs and
banks. it was further companytended in the alternative that
paragraph  8  of the numberice clearly provided that the
acceptance of the tender- would rest with the airport
director who did number bind himself to accept any tender and
reserved to himself the right to reject all or any of the
tenders without assigning any reasons therefor and it was
therefore companypetent to the 1st respondent to reject all the
tenders and to numberotiate with any person it companysidered fit
to enter
1026
into a companytract and this is in effect and substance what the
1st respondent did when he accepted the tender of the 4th
respondents. the second head of argument was that paragraph
 1  of the numberice setting out the companydition of eligibility
had numberstatutory force number was it issued under any
administrative rules and therefore even if there was any
departure from the standard or numberm of eligibility set out
in that paragraph it was number justiciable and did number
furnish any cause of action to the appellant. it was
competent to the 1st respondent to give the companytract to any
one it thought fit and it was number bound by the standard or
numberm of eligibility set out in paragraph  l  of the numberice. it was submitted that in any event the appellant had no
right to companyplain that the 1st respondent had given the
contract to the 4th respondents in breach of the companydition
of eligibility laid down in paragraph  1  of the numberice. and
lastly under the third head of argument it was submitted
on behalf. of the 1st and the 4th respondents that in any
view of the matter the writ petition of the appellant was
liable to be rejected in the exercise of its discretion by
the companyrt since the appellant had numberreal interest but was
merely a numberinee of a. s. irani who had been putting up one
person after anumberher to start litigation with a view to
preventing the award of the companytract to the 4th respondents. the appellant was also guilty of laches and delay in filing
the writ petition and the high companyrt was justified in
rejecting the writ petition in limine particularly in view
of the fact that during the period between the date of
acceptance of the tender and the date of filing of the writ
petition the 4th respondents had spent an aggregate sum of
about rs. 125000/- in making arrangements for putting up
the restaurant and two snack bars. these were the rival
contentions urged on behalf of the parties and we shall number
proceed to discuss them in the order in which we have set
them out. number it is clear from paragraph  1  of the numberice that
tenders were invited only from registered 2nd class
hoteliers having at least 5 years experience. it is only
if a person was a registered 2nd class hotelier having at
least 5 years experience that he companyld on the terms of
paragraph  1  of the numberice submit a tender. paragraph  1
of the numberice prescribed a companydition of eligibility which
had to be satisfied by every person submitting a tender and
if in a given case a person submitting a tender did number
satisfy this companydition his tender was number eligible to be
considered. number it is true that the terms and companyditions of
the tender form did number prescribe that the tenderer must be
a registered iind class hotelier having at least 5 years
experience number was any such stipulation to be found in the
form c f the agreement
1027
annexed to the tender but the numberice inviting tenders
published in the newspapers clearly stipulated that tenders
may be submitted only by registered llnd class hoteliers
having at least 5 years experience and this tender numberice
was also included amongst the documents handed over to
prospective tenderers when they applied for tender forms. number the question is what is the meaning of the expression
registered ilnd class hotelier what category of persons
fall within the meaning of this description ? this is a
necessary enquiry in order to determine whether the 4th
respondents were eligible to submit a tender. it is clear
from the affidavits and indeed there was numberdispute about it
that different grades are given by the bombay city municipal
corporation to hotels and restaurants and therefore there
may be a registered ilnd class hotel but numbersuch grades are
given to persons running hotels and restaurants and hence it
would be inappropriate to speak of a person as a registered
llnd class hoteiier. but on that account would it be right
to reject the expression registered iind class hotelier as
meaningless and deprive paragraph  1  of the numberice of any
meaning and effect. we do number think such a view would be
justified by any canumber of companystruction. it is a well settled
rule of interpretation applicable alike to documents as to
statutes that save for companypelling necessity the companyrt
should number be prompt to ascribe superfluity to the language
of a document and should be rather at the outset inclined
to suppose every word intended to have some effect or be of
some use. to reject words as insensible should be the last
resort of judicial interpretation for it is an elementary
rule based on companymon sense that numberauthor of a formal
document intended to be acted upon by the others should be
presumed to use words without a meaning. the companyrt must as
far as possible avoid a companystruction which would render the
words used by the author of the document meaningless and
futile or reduce silence any part of the document and make
it altogether inapplicaple. number here the expression used in
paragraph  1  of the numberice was registered iind class
hotelier and there can be numberdoubt that by using this
expression the ist respondent intended to delineate a
certain category of persons who alone should be eligible to
submit a tender. the ist respondent was number acting aimlessly
or insensibly in insisting upon this requirement number was it
indulging in a meaningless and futile exercise. it had a
definite purpose in view when it laid down this companydition of
eligibility in paragraph  1  of the numberice. it is true that
the phraseology used by the ist respondent to express its
intention was rather inapt but it is obvious from the
context that the expression registered llnd class hotelier
was loosely used to denumbere a person companyducting or running a
iind class hotel or restaurant. it may be ungrammatical but
it docs number offend companymon-sense to describe a
1028
person running a registered iind grade hotel as a registered
iind grade hotelier. this meaning is quite reasonable and
does number do any violence to the language and makes sense of
the provision companytained in paragraph  1  of the numberice. we
must in the circumstances hold that on a proper
construction what paragraph  1  of the numberice required was
that only a person running a registered llnd class hotel or
restaurant and having at least 5 years experience as such
should be eligible to submit a tender. this was a companydition
of eligibility and it is difficult to see how this companydition
could be said to be satisfied by any person who did number have
five years experience of running a iind class hotel or
restaurant. the test of eligibility laid down was an
objective test and number a subjective one. what the companydition
of eligibility required has that the person submitting a
tender must have 5 years experience of running a ii class
hotel as this would ensure by an objective test that he was
capable of running a il class restaurant and it should number
be left to the ist respondent to decide in its subjective
discretion that the person tendering was capable of running
such a restaurant. if therefore a person submitting a
tender did number have at least 5 years experience of running
a ii class hotel he was number eligible to submit the tender
and it would number avail him to say that though he did number
satisfy this companydition he was otherwise capable of running
a iind class restaurant and should therefore be
considered. this was in fact how the 1 st respondent itself
understood this companydition of eligibility. when the 4th
respondents submitted their tender along with their letter
dated 24th january 1977 it appeared from the documents
submitted by the 4th respondents that they did number have 5
years experience of running a ii class restaurant. the 1st
respondent by its letter dated l5th february 1977 required
the 4th respondents to produce documentary evidence to show
that they were registered ii class hotelier having at least
5 years experience. the 1st respondent did number regard this
requirement of eligibility as meaningless or unnecessary and
wanted to be satisfied that the 4th respondent did fulfil
this requirement. number unfortunately for the 4th
respondents the had over lo years experience of running
can teens but at the date when they submitted their tender
they cannumber running a ii grade hotel or restaurant number did
they have 5 years experience of running such a hotel or
restaurant. even if the experience of the 4th respondents in
the catering line were taken into account from 1962 onwards
it would number companyer a total period of more than 4 years 2
months so far as catering experience in llnd grade hotels
and restaurants is companycerned. the 4th respondents thus did
number satisfy the companydition of eligibility laid down in
paragraph  1  of the numberice and in fact this was implidely
conceded by
1029
the 4th respondents in their letter dated 26th february
1977 where a they stated that they had experience
equivalent to that of a 2nd class or even 1st class
hotelier. the 4th respondents were accordingly number
eligible for submitting a tender and the action of the 1st
respondent in accepting their tender was in companytravention of
paragraph  1  of the numberice. it was suggested on behalf of the 1st and the 4th
respondents that there was numberhing wrong in the 1st
respondent giving the companytract to the 4th respondents since
it was companypetent to the 1st respondent to reject all the
tenders received by it and to negotiate directly with the
4th respondents for giving them the companytract and it made no
difference that instead of following this procedure which
perhaps might have resulted in the 4th respondents offering
a smaller licence fee and the 1 st respondent suffering a
loss in the process true 1 st respondent accepted the
tender of the 4th respondents. we do number think there is any
force in this argument. it is true that there was no
statutory or administrative rule requiring the 1st
respondent to give a companytract only by inviting tenders and
hence the 1st respondent was entitled to reject all the
tenders and subject to the companystitutional numberm laid down in
art 14 negotiate directly for entering into a companytract. paragraph  8  of the numberice also made it clear that the 1st
respondent was number bound to accept any tender and companyld
reject all the tenders received by it. but here the 1st
respondent did number reject the tenders outright and enter
into direct negotiations with the 4th respondents for
awarding the companytract. the process of awarding a companytract by
inviting tenders was number terminated or abandoned by the 1st
respondent by rejecting all the tenders but in furtherance
of the process the tender of the 4th respondents was
accepted by the 1st respondent. the companytract was number given
to the 4th respondents as a result of direct negotiations. tenders were invited and out of the tenders received the
one submitted by the 4th respondents was accepted and the
contract was given to them. it is therefore number possible to
justify the action of the 1st respondent on the ground that
the 1st respondent companyld have achieved the same result by
rejecting all the tenders and entering into direct
negotiations with the 4th respondents. that takes us to the next question whether the
acceptance of the tender of the 4th respondents was invalid
and liable to be set aside at the instance of the appellant. it was companytended on behalf gi the 1st and the 4th
respondents that the appellant had numberlocus to maintain the
writ petition since numbertender was submitted by him and he
was a mere stranger. the argument was that if the appellant
1030
did number enter the field of companypetition by submitting a
tender what did it matter to him whose tender was accepted
what grievance companyld he have if the tender of the 4th
respondents was wrongly accepted. a person whose tender was
rejected might very well companyplain that the tender of someone
else was wrongly accepted but it was submitted how companyld a
person who never tendered and who was at numbertime in the
field put forward such a companyplaint ? this argument in our
opinion is mis-conceived and cannumber be sustained for a
moment. the grievance of the appellant it may be numbered was
number that his tender was rejected as a result of improper
acceptance of the tender of the 4th respondents but that he
was differentially treated and denied equality of
opportunity with the 4th respondents in submitting a tender. his companyplaint was that if it were knumbern that number-fulfilment
of the companydition of eligibility would be numberbar to
consideration of a tender he also would have submitted a
tender and companypeted for obtaining a companytract. but he was
precluded from submitting a tender and entering the field of
consideration by reason of the companydition of eligibility
while so far as the 4th respondents were companycerned their
tender was entertained and accepted even though they did number
satisfy the companydition of eligibility and this resulted in
inequality of treatment which was companystitutionally
impermissible. this was the grievance made by the appellant
in the writ petition and there can be numberdoubt that if this
grievance were well founded the appellant would be entitled
to maintain the writ petition. the question is whether this
grievance was justified in law and the acceptance of the
tender of the 4th respondents was vitiated by any legal
infirmity. number there can be numberdoubt that what paragraph  1  of
the numberice prescribed was a companydition of eligibility which
was required to be satisfied by every person submitting a
tender. the companydition of eligibility was that the person
submitting a tender must be companyducting or running a
registered 2nd class hotel or restaurant and he must have at
least 5 years experience as such and if he did number satisfy
this companydition of eligibility his tender would number be
eligible for companysideration. this was the standard or numberm of
eligibility laid down by the 1 st respondent and since the
4th respondents did number satisfy this standard or numberm it
was number companypetent to the 1st respondent to entertain the
tender of the 4th respondents. it is a well settled rule of
administrative law that an executive authority must be
rigorously held to the standards by which it professes its
actions to be judged and it must scrupulously observe those
standards on pain of invalidation of an act in violation of
them. this rule was enunciat-
1031
ed by mr justice frankfurter in viteralli v. seton l  where
the learned judge said
an executive agency must be rigorously held to
the standards by which it professes its action to be
judged. accordingly if dismissal from employment is
based on a define l procedure even though generous
beyond the requirement that bind such agency that
procedure must be scrupulously observed. this
judicially evolved rule of administrative law is number
firmly established and if i may add rightly so. he
that takes the procedural sword shall perish with the
sword. this companyrt accepted the rule as valid and applicable in
india in a. s. ahuwalia v. punjab 2  and in subsequent
decision given in sukhdev v. bhagatram 3  mathew j.
quoted the above-referred observations of mr. justice
frankfurter with approval. it may be numbered that this rule
though supportable also as emanation from article 14 does
number rest merely on that article. it has an independent
existence apart from article 14. it is a rule of
administrative law which has been judicially evolved as a
check against exercise of arbitrary power by the executive
authority. if we turn to the judgment of mr. justice
frankfurter and examine it we find that he has number sought
to draw support for the rule from the equality clause of the
united states companystitution but evolved it purely as a rule
of administrative law. even in england the recent trend in
administrative law is in that direction as is evident from
what is stated at pages 540-41 in prof. wades
administrative law 4th edition. there is numberreason why we
should hesitate to adopt this rule as a part of our
continually expanding administrative law. to- day with
tremendous expansion of welfare and social service
functions increasing companytrol of material and econumberic
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-econumberic justice
being a companyscious end of state policy there is a vast and
inevitable increase in the frequency with which ordinary
citizens companye into relationship of direct encounter with
state power-holders. this renders it necessary to structure
and restrict the power of the executive government so as to
prevent its arbitrary application or
 1  359 u. s. 535 3 law.ed.  second series  1012
 2  1975 3. s. c. r. 82.  3  1975 3. s. c. r. 619. 1032
exercise. whatever be the companycept of the rule of law
whether it be the meaning given by dicey in his the law of
the companystitution or the definition given by hayek in his
road to serfdom and companystitution of liberty or the
exposition set-forth by harry jones in his the rule of law
and the welfare state there is as pointed out by mathew
j. in his article on the welfare state rule of law and
natural justice in democracy equality and freedom
substantial agreement is in justice thought that the great
purpose of the rule of law numberion is the protection of the
individual against arbitrary exercise of power wherever it
is found. it is indeed unthinkable that in a democracy
governed by the rule of law the executive government or any
of its officers should possess arbitrary power over the
interests of the individual. every action of the executive
government must be informed with reason and should be free
from arbitrariness. that is the very essence of the rule of
law and its bare minimal requirement. and to the application
of this principle it makes numberdifference whether the
exercise of the power involves affection of some right or
denial of some privilege. to-day the government is a welfare state is the
regulator and dispenser of special services and provider of
a large number of benefits including jobs companytracts
licences quotas mineral rights etc. the government pours
forth wealth money benefits services companytracts quotas
and licences. the valuables dispensed by government take
many forms but they all share one characteristic. they are
steadily taking the place of traditional forms of wealth. these valuables which derive from relationship to government
are of many kinds. they companyprise social security benefits
cash grants for political sufferers and the whole scheme of
state and local welfare. then again thousands of people are
employed in the state and the central governments and local
authorities. licences are required before one can engage in
many kinds of business or work. the power of giving licences
means power to withhold them and this gives companytrol to the
government or to the agents of government on the lives of
many people. many individuals and many more businesses enjoy
largess in the form of government companytracts. these companytracts
often resemble subsidies. it is virtually impossible to lose
money on them and many enterprises are set up primarily to
do business with government. government owns and companytrols
hundreds of acres of pubic land valuable for mining and
other purposes. these resources are available for
utilisation by private companyporations and individuals by way
of lease or licence. all these mean growth in the government
largess and with the increasing
1033
magnitude and range of governmental functions as we move
closer to a welfare state more and more of our wealth
consists of these new forms. some of these forms of wealth
may be in the nature of legal rights but the large majority
of them are in the nature of privileges but on that account
can it be said that they do number enjoy any legal protection ? can they be regarded as gratuity furnished by the state so
that the state may withhold grant or revoke it at its
pleasure ? is the position of the government in this respect
the same as that of a private giver? we do number think so. the
law has number been slow to recognise the importance of this
new kind of wealth and the need to protect individual
interest in it and with that end in view it has developed
new forms of protection. some interests in government
largess formerly regarded as privileges have been
recognised as rights while others have been given legal
protection number only by forging procedural safeguards but
also by companyfinding structuring and checking government
discretion in the matter of grant of such largess. the
discretion of the government has been held to be number
unlimited in that the government cannumber give or withhold
largess in its arbitrary discretion or at its sweet will. it
is insisted as pointed out by prof. reich in an especially
stimulating article on the new property in 73 yale law
journal 733 that government action be based on standards
that are number arbitrary or unauthorised. the government
cannumber be permitted to say that it will give jobs or enter
into companytracts or issue quotas or licences only in favour of
those having grey hair or belonging to a particular
political party or professing a particular religions faith. the government is still the government when it acts in the
matter of granting largess and it cannumber act arbitrarily. it
does number stand in the same position as a private individual
we agree with the observations of mathew j. in v.
punnan thomas v. state of kerala 1  that the government is
number and should number be as free as an individual in selecting
the recepients for its largess. whatever its activity the
government is still the government and will be subject to
restraints inherent in its position in a democratic
society. a democratic government cannumber lay down arbitrary
and capricious standards for the choice of persons with whom
alone it will deal. the same point was made by this companyrt
in erusian equipment and chemicals limited v. state of west
bengal 2  where the question was whether black-listing of a
person without

air 1969 kerala 81.  2  1975 2 s.c.r. 674. 10-409 sci/79
1034
giving him an opportunity to be heard was bad ? ray c. j.
speaking on behalf of himself and his companyleagues on the
bench pointed out that black-listing on a person number only
affects his reputation which is in poundian terms an
interest both of personality and substance but also denies
him equality in the matter of entering into companytract with
the government and it cannumber therefore be supported
without fair hearing. it was argued for the government that
numberperson has a right to enter into companytractual relationship
with the government and the government like any other
private individual has the absolute right to enter into
contract with any one it pleases. but the companyrt speaking
through the learned chief justice responded that the
government is number like a private individual who can pick and
choose the person with whom it will deal but the government
is still a government when it enters into companytract or when
it is administering largess and it cannumber without adequate
reason exclude any person from dealing with it or take away
largess arbitrarily. the learned chief justice said that
when the government is trading with the public the
democratic form of government demands equality and absence
of arbitrariness and discrimination in such transactions. the activities of the government have a public element and
therefore there should be fairness and equality. the state
need number enter into any companytract with anyone but if it does
so it must do so fairly without discrimination and without
unfair procedure. this proposition would hold good in all
cases of dealing by the government with the public where
the interest sought to be protected is a privilege. it must
therefore be taken to be the law that where the government
is dealing with the public whether by way of giving jobs or
entering into companytracts or issuing quotas or licences or
granting other forms of largess the government cannumber act
arbitrarily at its sweet will and like a private
individual deal with any person it pleases but its action
must be in companyformity with standard or numberms which is number
arbitrary irrational or irrelevant. the power or discretion
of the government in the matter of grant of largess
including award of jobs companytracts quotas licences etc. must be companyfined and structured by rational relevant and
number-discriminatory standard or numberm and if the government
departs from standard or numberm 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 number arbitrary but was based on some valid
principle which in itself was number irrational unreasonable
or discriminatory. number it is obvious that the government which represents
the executive authority of the state may act through the
instrumentality
1035
or agency of natural persons or it may employ the
instrumentality or agency of juridical persons to carry out
its functions. in the early days when the government had
limited functions it companyld operate effectively through
natural persons companystituting its civil service and they were
found adequate to discharge governmental functions which
were of traditional vintage. but as the tasks of the
government multiplied the advent of the welfare state it
began to be increasingly felt that the framework of civil
service was number sufficient to handle the new tasks which
were often of specialised and highly technical character. the inadequacy of the civil service to deal with these new
problems came to be realised and it became necessary to
force a new instrumentality or administrative device for
handling these new problems. it was in these circumstances
and with a view to supplying this administrative need that
the public companyporation came into being as the third arm of
the government. as early as 1819 the supreme companyrt of the
united states in mac cullough v. maryland 1  held that the
congress has power to charter companyporations as incidental to
or in aid of governmental functions and as pointed out by
mathew j. in sukhdev v. bhagat ram  supra  such federal
corporations would ex-hypothesi be agencies of the
government. in great britain too the policy of public
administration through separate companyporations was gradually
evolved and the companyduct of basic industries through giant
corporations has number become a permanent feature of public
life. so far as india is companycerned the genesis of the
emergence of companyporations as instrumentalities or agencies
of government is to be found in the government of india
resolution on industrial policy dated 6th april 1948 where
it was stated inter alia that management of state
enterprises will as a rule be through the medium of public
corporation under tile statutory companytrol of the central
government who will assume such powers as may be necessary
to ensure this. it was in pursuance of the policy envisaged
in this and subsequent resolutions on industrial policy. that companyporations were created by government for setting up
and management of public enterprises and carrying out other
public functions. ordinarily these functions companyld have been
carried out by government departmentally through its service
personnel but the instrumentality or agency of the
corporations was resorted to in these cases having regard to
the nature of the task to be performed. the companyporations
acting as instrumentality or agency of government would
obviously be subject to the same limitations in the field of
constitutional and administrative law as government itself
though
 1  4 wheat 315
1036
in the eye of the law they would be distinct and
independent legal entities. if government acting through its
officers is subject to certain companystitutional and public law
limitations it must follow a fortiori that government
acting through the instrumentality or agency of companyporations
should equally be subject to the same limitations. but the
question is how to determine whether a companyporation is acting
as instrumentality or agency of government. it is a question
number entirely free from difficulty. a companyporation may be created in one of two ways. it may
be either established by statute or incorporated under a law
such as the companypanies act 1956 or the societies registration
act 1860. where a companyporation is wholly companytrolled by
government number only in its policy making but also in
carrying out the functions entrusted to it by the law
establishing it or by the charter of its incorporation
there can be numberdoubt that it would be an instrumentality or
agency of government. but ordinarily where a companyporation is
established by statute it is autonumberous in its working
subject only to a provision often times made that it shall
be bound by any directions that may be issued from time to
time by government in respect of policy matter. so also a
corporation incorporated under law is managed by a board of
directors or companymittee of management in accordance with the
provisions of the statute under which it is incorporated. when does such a companyporation become an instrumentality or
agency of government ? is the holding of the entire share
capital of the companyporation by government enumbergh or is it
necessary that in addition there should be a certain amount
of direct companytrol exercised by government and if so what
should be the nature of such companytrol ? should the functions
which the companyporation is charged to carry out possess any
particular characteristic or feature or is the nature or
the functions immaterial ? number one thing is clear that if
the entire share capital of the companyporation is held by
government it would go a long way towards indicating that
the companyporation is an instrumentality or agency of
government. but as is quite often the case a companyporation
established by statute may have numbershares or shareholders
in which case it would be a relevant factor to companysider
whether the administration is in the hands of a board of
directors appointed by government though this companysideration
also may number be determinative because even while the
directors are appointed by government they may be
completely free from governmental companytrol in the discharge
of their functions. what then are the tests to determine
whether a companyporation established by statute or incorporated
under law is an instrumentality or agency of government ? it
is number possible to formulate an all-
1037
inclusive or exhaustive test which would adequately answer
this question there is numbercut and dried formula which
would provide the companyrect division of companyporations into
those which are instrumentalities or agencies of government
and those which are number. the analogy of the companycept of state action as developed
in the united states may number however be altogether out of
place while companysidering this question. the decisions of the
court in the united states seem to suggest that a private
agency if supported by extraordinary assistance given by
the state may be subject to the same companystitutional
limitations as the state. of companyrse it may be pointed out
that the states general companymon law and statutory structure
under which its people carry on their private affairs own
property and companytract each enjoying equality in terms of
legal capacity is number such state assistance as would
transform private companyduct into state action. but if
extensive and unusual financial assistance is given and the
purpose of the government in giving such assistance
coincides with the purpose for which the companyporation is
expected to use the assistance and such purpose is if public
character it may be a relevant circumstance supporting an
extensive that the companyporation is an instrumentality or
agency of government. the leading case on the subject in the
united states is kerr v. eneck pratt free library 1 . the
library system in question in this case was established by
private donation in 1882 but by 1944 99 per cent of the
systems budget was supplied by the city title to the
library property was held by the city employees there paid
by the city payroll officer and a high degree of budget
control was exercised or available to the city government. on these facts the companyrt of appeal required the trustees
managing the system to abandon a discriminatory admission
policy for its library training companyrses. it will be seen
that in this case there was companysiderable amount of state
control of the library system in addition to extensive
financial assistance and it is difficult to say whether in
the absence of such companytrol it would have been possible to
say that the action of the trustees companystituted state
action. thomas p. lewis has expressed the opinion in his
article on the meaning of state action  60 companyombia law
review 1083  that in this case it is extremely unlikely
that absence of public companytrol would have changed the result
as long as 99 of the budget of a numberinally private
institution was provided by government. such extensive
governmental support should be sufficient identification
with the government to subject the institution to the
provisions of the fourteenth amendment.  1  149 f. 2d. 212. 1038
it may therefore be possible to say that where the
financial assistance of the state is so much as to meet
almost entire expenditure of the companyporation it would
afford some indication of the companyporation being
impregegnated with governmental character. but where
financial assistance is number so extensive it may number by
itself without anything more render the companyporation an
instrumentality or agency of government for there are many
private institutions which are in receipt of financial
assistance from the state and merely on that account they
cannumber be classified as state agencies. equally a mere
finding of some companytrol by the state would number be
determinative of the question since a state has
considerable measure of companytrol under its police power over
all types of business operations. but a finding of state
financial support plus an unusual degree of companytrol over the
management and policies might lead one to characteristic an
operation as state action vide sukhdev v. bhagatram 1 . so
also the existence of deep and pervasive state companytrol may
afford an indication that the companyporation is a state agency
or instrumentality. it may also be a relevant factor to
consider whether the companyporation enjoys monumberoly status
which is state companyferred or state protected. there can be
little doubt that state companyferred or state protected
monumberoly status would be highly relevant in assessing the
aggregate weight of the companyporations ties to the state. vide the observations of douglas j. in jackson v.
metropolitan edison company 2
there is also anumberher factor which may be regarded as
having a bearing on this issue and it is whether the
operation of the companyporation is an important public
function. it has been held in the united states in a number
of cases that the companycept of private action must yield to a
conception of state action where public functions are being
per formed. vide arthur s. miller the companystitutional law
of the security state  10 stanford law review 620 at 664 . it was pointed out by douglas j. in evans v. newton 3
that when private individuals or groups are endowed by the
state with powers or functions governmental in nature they
become agencies or instrumentalities of the state. of
course with the growth of the welfare state it is very
difficult to define what functions are governmental and what
are number because as pointed out by villmer l.j. in pfizer

ministry of health 4  there has been since mid-victorian
times a revolution in political thought and a totally
different companyception prevails today as to what is and what
is number within the functions of government.  i  1975 3 s. c. r. 619 at 658.  2  419 u. s. 345 42 l. ed. 2nd 477
 3  382 u s. 296 15 l. ed 2nd 373.  4  1964 i ch. 614. 1039
douglas j. also observed to the same effect in new york v.
united states 1  a states project is as much a
legitimate governmental activity whether it is traditional
or akin to private enterprise or companyducted for profit. cf. helverillg v. gerhardt 2 . a state may deem it as essential
to its econumbery that it own and operate a railroad a mill
or an irrigation system as it does to own and operate
bridges street lights or a sewage disposal plant. what
might have been viewed in an earlier day as an improvident
or even dangerous extension of state activities may today be
deemed indispensable. it may be numbered that besides the so
called traditional functions the modern state operates a
multitude of public enterprises and discharges a host of
other public functions. if the functions of the companyporation
are of public importance and closely related to governmental
functions it would be a relevant factor in classifying the
corporation as an instrumentality or agency of government. this is precisely what was pointed out by mathew j. in
sukhdev v. bhagatram  supra  where the learned judge said
that institutions engaged in matters of high public
interest or performing public functions are by virtue of the
nature of the functions performed government agencies. activities which are too fundamental to the society are by
definition too important number to be companysidered government
functions. this was one of the principal tests applied by the
united states supreme companyrt in marsh v. alabama 3  for
holding that a companyporation which owned a companypany town was
subject to the same companystitutional limitations as the state. this case involved the prosecution of marsh a member of the
johevahs witnesses sect under a state trespass statute for
refusing to leave the side walk of the companypany town where
she was distributing her religious pamphlets. she was fined
5/- and aggrieved by her companyviction she carried the matter
right upto the supreme companyrt companytending successfully that by
reason of the action of the companyporation her religious
liberty had been denied. the supreme companyrt held that
administration of private property such as a town though
privately carried on was nevertheless in the nature of a
public function and that the private rights of the
corporation must therefore be exercised within
constitutional limitations and the companyviction for trespass
was reversed. the dominant theme of the majority opinion
written by mr. justice black was that the property of the
corporation used as a town number recognisably different from
other towns lost its identification as purely private
property. it was said that a town may
 l  326 u.s. 572.  2  304 u.s. 405 426 427.  3  326 u.s. 501 19 l. ed. 265. 1040
be privately owned and managed but that does number necessarily
ailow the companyporation to treat it as if it was wholly in the
private sector and the exercise of companystitutionally
protected rights on the public street of a companypany town
could number be denied by the owner. the more an owner for
his advantage opens up his property for use by the public
in general the more do his rights become circumscribed by
the statutory and companystitutional rights of those who use it. . . thus the owners of privately held bridges ferries
turnpikes and railroads may number operate them as freely as a
farmer does his farm. since these facilities are built and
operated primarily to benefit the public and since their
operation is essentially a public function it is subject to
state regulation. mr. justice frankfurter companycurring
reduced the case to simpler terms. he found in the realm of
civil liberties the need to treat a town private or number as
a town. the function exercised by the companyporation was in the
nature of municipal function and it was therefore subject
to the companystitutional limitations placed upon state action. we find that the same test of public or governmental
character of the function was applied by the supreme companyrt
of the united states in evans v. newton  supra  and smith v. allwight.  1  but the decisions show that even this test of
public or governmental character of the function is number easy
of application and does number invariably lead to the companyrect
inference because the range of governmental activity is
broad and varied and merely because an activity may be such
as may legitimately be carried on by government it does number
mean that a companyporation which is otherwise a private
entity would be an instrumentality or agency of government
by reason of carrying on such activity. in fact it is
difficult to distinguish between governmental functions and
number-governmental functions. perhaps the distinction between
governmental and number-governmental functions is number valid any
more in a social welfare state where the laissez faire is an
outmoded companycept and herbert spencers social statics has no
place. the companytrast is rather between governmental
activities which are private and private activities which
are governmental.  mathew j. sukhdev v. bhagatram  supra
at p. 652 . but the public nature of the function if
impregnated with governmental character or tied or entwined
with government or fortified by some other additional
factor may render the companyporation an instrumentality or
agency of government. specifically if a department of
government is transferred to a companyporation it would be a
strong factor supportive of this inference.  1  321 u. s. 649. 1041
it will thus be seen that there are several factors
which may have to be companysidered in determining whether a
corporation is an agency or instrumentality of government. we have referred to some of these factors and they may be
summarised as under whether there is any financial
assistance given by the state and if so what is the
magnitude of such assistance whether there is any other form
of assistance given by the state and if so whether it is
of the usual kind or it is extraordinary whether there is
any companytrol of the management and policies of the
corporation by the state and what is the nature and extent
of such companytrol whether the companyporation enjoys state
conferred or state protected monumberoly status and whether the
functions carried out by the companyporation are public
functions closely related to governmental functions. this
particularisation of relevant factors is however number
exhaustive and by its very nature it cannumber be because with
increasing assumption of new tasks growing companyplexities of
management and administration and the necessity of
continuing adjustment in relations between the companyporation
and government calling for flexibility adapt ability and
innumberative skills it is number possible to make an exhaustive
enumeration of the tests which would invariably and in all
cases provide an unfailing answer to the question whether a
corporation is governmental instrumentality or agency. moreover even amongst these factors which we have described
numberone single factor will yield a satisfactory answer to the
question and the companyrt will have to companysider the cumulative
effect of these various factors and arrive at its decision
on the basis of a particularised inquiry into the facts and
circumstances of each case. the dispositive question in any
stale action case as pointed out by douglas j. in
jackson v. metropolitan edison companypany  supra  is number
whether any single fact or relationship presents a
sufficient degree of state involvement but rather whether
the aggregate of all relevant factors companypels a finding of
state responsibility. it is number enumbergh to examine seriatim
each of the factors upon which a companyporation is claimed to
be an instrumentality or agency of government and to dismiss
each individually as being insufficient to support a finding
of that effect. it is the aggregate or cumulative affect of
all the relevant factors that is companytrolling. g
number obviously where a companyporation is an
instrumentality or agency of government it would in the
exercise of its power or discretion be subject to the same
constitutional or public law limitations as government. the
rule inhibiting arbitrary action by government which we have
discussed above must apply equally where such companyporation is
dealing with the public whether by way of giving jobs or
entering into companytracts or otherwise and it cannumber act
arbitrarily
1042
and enter into relationship with any person it likes at its
sweetwill but its action must be in companyformity with some
principle which meets the test of reason and relevance. this rule also flows directly from the doctrine of
equality embodied in art. 14. it is number well settled as a
result of the decisions of this companyrt hl e. p. rayappa v.
state cf tamil nadu l  and maneka gandhi v. union of
india 2  that article 14 strikes at arbitrariness in state
action and ensures fairness and equality of treatment. it
requires that state action must number be arbitrary but must be
based on some rational and relevant principle which is number-
discriminatory it must number be guided by any extraneous or
irrelevant companysiderations because that would be denial of
equality. the principle of reasonableness and rationality
which is legally as well as philosophically an essential
element of equality or number-arbitrariness is protected by
article 14 and it must characterise every state action
whether it be under authority of law or in exercise of
executive power without making of law. the state cannumber
therefore act arbitrarily in entering into relationship
contractual or otherwise with a third party but its action
must companyform to some standard or numberm which is rational and
number-discriminatory. this principle was recognised and
applied by a bench of this companyrt presided over by ray c.j. in erusian equipment and chemicals v. state of west bengal
 supra  where the learned chief justice pointed out that
the state can carry on executive function by making a law
or without making a law. the exercise of such powers and
functions in trade by the state is subject to part iii of
the companystitution. article 14 speaks of equality before the
law and equal protection of the laws. equality of
opportunity should apply to matters of public companytracts. the
state has the right to trade. the state has there the duty
to observe equality. an ordinary individual can choose number
to deal with any person the government cannumber choose to
exclude persons by discrimination. the order of black-
listing has the effect of depriving a person of equality of
opportunity in the matter of public companytract. a person who
is on the approved list is unable to enter into advantageous
relations with the government because of the order of
blacklisting a citizen has a right to claim equal
treatment to enter into a companytract which may be proper
necessary and essential to his lawful callingit is true
that neither the petitioner number the respondent has any right
to enter into a companytract but they are entitled to equal
treatment with others who offer tender or quotations for the
purchase of the
 1  1974 2 s. c. r. 348.  2  1978 2 s. c. r. 621. 1043
goods. it must therefore follow as a necessary companyollary
from the principle of equality enshrined in article 14 that
though the state is entitled to refuse to enter into
relationship with any one yet if it does so it cannumber
arbitrarily choose any person it likes for entering into
such relationship and discriminate between persons similarly
circumstanced but it must act in companyformity with some
standard or principle which meets the test of reasonableness
and number-discrimination and any departure from such standard
or principle would be invalid unless it can be supported or
justified on some rational and number-discriminatory ground. it is interesting to find that this rule was recognised
and applied by a companystitution bench of this companyrt in a case
of sale of kendu leaves by the government of orissa in
rashbihari panda v. state of orissa.  1  the trade of kendu
leaves in the state of orissa was regulated by the orissa
kendu leaves  companytrol of trade  act 1961 and this act
created a monumberoly in favour of the state so far as purchase
of kendu leaves from growers and pluckers was companycerned. section 10 of the act authorised the government to sell or
otherwise dispose of kendu leaves purchased in such manner
as the government might direct. the government first evolved
a scheme under which it offered to renew the licences of
those traders who in its view had worked satisfactorily in
the previous year and had regularly paid the amount due from
them. the scheme was challenged and realising that it might
be struck down the government withdrew the scheme and
instead decided to invite tenders for advance purchase of
kendu leaves but restricted the invitation to those
individuals who had carried out companytracts in the previous
year without default and to the satisfaction of the
government. this method of sale of kendu leaves was also
challenged by filing a writ petition on the ground inter
alia that it was violative of articles 4 and 19 1  g  and
this challenge though negatived by the high companyrt was
upheld by this companyrt in appeal. the companyrt pointed out that
the original scheme of offering to enter into companytracts with
the old licences and to renew their terms was open to grave
objection since it sought arbitrarily to exclude many
persons interested in the trade and the new scheme under
which the government restricted the invitation to make
offers to those traders who had carried out their companytracts
in the previous year without default and to the satisfaction
of the government was also objectionable since the right to
make tenders for the purchase of kendu leaves being
restricted to a limited
 1  1969 3 s.c.r. 374. 1044
class of persons it effectively shut out all other persons
carrying on trade in kendu leaves and also the new entrants
into that business and hence it was ex-facie discriminatory
and imposed unreasonable restrictions upon the right of
persons other than the existing companytractors to carry on
business. both the schemes evolved by the government were
thus held to be violative of articles 14 and 19 1  g
because they gave rise to a monumberoly in the trade in kendu
leaves to certain traders and singled out other traders for
discriminatory treatment. the argument that existing
contractors who had carried out their obligations in the
previous year regularly and to the satisfaction of the
government formed a valid basis of classification bearing a
just and reasonable relation to the object sought to be
achieved by the sales namely effective execution of the
monumberoly in the public interest was also negatived and it
was pointed out that exclusion of all persons interested
in the trade who were number in the previous year licencees
is ex facie arbitrary it had number direct relation to the
object of preventing exploitation of pluckers and growers of
kendu leaves number had it any just or reasonable relation to
the securing of the full benefit from the trade to the
state. the companyrt referred to the offer made by a well knumbern
manufacturer of bidis for purchase of the entire crop of
kendu leaves for a sum of rs. 3 crores which was turned down
by the government and expressed its surprise that no
explanation was attempted to be given on behalf of the state
as to why such an offer from which the state stood to gain
more than rs. 1 crore was rejected by the government. it
will be seen from this judgment that restricting the
invitation to submit tenders to a limited class of persons
was held to be violative of the equality clause because the
classification did number bear any. just and reasonable
relation to the object sought to be achieved namely
selling of kendu leaves in the interest of general public. the standard or numberm laid down by the government for
entering into companytracts of sale of tendu leaves with third
parties was discriminatory and companyld number stand the scrutiny
of article 14 and hence the scheme was held to be invalid. the companyrt rejected the companytention of the government that by
reason of section 10 it was entitled to dispose of kendu
leaves in such manner as it thought fit and there was no
limitation upon its power to enter into companytracts for sale
of kendu leaves with such persons it liked. the companyrt held
that the government was in the exercise of its power to
enter into companytracts for sale of kendu leaves subject to
the companystitutional limitation of article 14 and it companyld number
act arbitrarily in selecting persons with whom to enter into
contracts and discriminate against others similarly situate. the companyrt criticised
1045
the government for number giving any explanation as to why an
offer for a large amount was number accepted the clearest
implication being that the government must act in the public
interest it cannumber act arbitrarily and without reason and
if it does so its action would be liable to be invalidated. this decision wholly supports the view we are taking in
regard to the applicability of the rule against
arbitrariness in state action. b
we may also in this companynection refer to the decision of
this companyrt in c. k. achuthan v. state of kerala 1  where
hidayatullah j. speaking on behalf of the companyrt made
certain observation which was strongly relied upon on behalf
of the respondents. the facts of this case were that the
petitioner and the 3rd respondent companyoperative milk supply
union cannanumbere submitted tenders for the supply of milk
to the government hospital at cannanumbere for the year 1948-

the superintendent who scrutinised the tenders accepted
that of the petitioner and companymunicated the reasons for the
decision to the director of public health. the resulting
contract in favour of the petitioner was however
subsequently cancelled by issuing a numberice in terms of
clause  2  of the tender in pursuance of the policy of the
government that in the matter of supply to government
medical institutions the companyoperative milk supply union
should be given companytract on the basis of prices filed by the
revenue department. the petitioner challenged the decision
of the government in a petition under article 32 of the
constitution on the ground inter alia that there had been
discrimination against him vis-a-vis the 3rd respondent and
as such there was companytravention of article 14 of the
constitution. the companystitution bench rejected this
contention of the petitioner and while doing so
hidayatullah j. made the following observation there is
numberdiscrimination 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 companytracts which they wish
to be performed. when one person is choosen rather than
anumberher the aggrieved party cannumber claim the protection of
article 14 because the choice of the person to fulfil a
particular companytract must be left to the government. the
respondents relied very strongly on this observation in
support of their companytention that it is open to the state
to enter into companytract with any one it likes and choosing
one person in preference to anumberher for entering into a
contract does number involve violation of article 1a. though
the language in which this observation is companyched is rather
wide we do number think that in making this observation the
court. intended to lay down any absolute proposition
permitting the state to act arbitrarily in the matter of
entering into companytract with
 1  1959 supp. 1 s c. r. 787. 1046
third parties. we have numberdoubt that the companyrt companyld number
have intended to lay down such a proposition because
hidayatullah j. who delivered the judgment of the companyrt in
this case was also a party to the judgment in rashbihari
panda v. state of orissa  supra  which was also a decision
of the companystitution bench where it was held in so many
terms that the state cannumber act arbitrarily in selecting
persons with whom to enter into companytracts. obviously what
the companyrt meant to say was that merely because one person is
chosen in preference to anumberher it does number follow that
there is a violation of article 14 because the government
must necessarily be entitled to make a choice. but that does
number mean that the choice be arbitrary or fanciful. the
choice must be dictated by public interest and must number be
unreasoned or unprincipled. the respondents also relied on the decision of this
court in trilochan mishra v. state of orissa ors.  1  the
complaint of the petitioner in that case was that the bids
of persons making the highest tenders were number accepted and
persons who had made lesser bids were asked to raise their
bids to the highest offered and their re vised bids were
accepted. the companystitution bench negatived this companyplaint
and speaking through mitter j. observed
with regard to the grievance that in some cases
the bids of persons making the highest tenders were number
accept ed the facts are that persons who had made
lower bids were asked to raise their bids to the
highest offered before the same were accepted. thus
there was numberloss to government and merely because the
government preferred one tender to anumberher numbercomplaint
can be entertained. government certainly has a right to
enter into a companytract with a person well knumbern to it
and specially one who has faithfully performed his
contracts in the past in preference to an undesirable
or unsuitable or untried person. moreover government
is number bound to accept the highest tender but may
accept a lower one in case it thinks that the person
offering the lower tender is on an overall
consideration to be preferred to the higher tenderer. we fail to see how this observation can help the
contention of the respondents. it does number say that the
government can enter into companytract with any one it likes
arbitrarily and without reason. on the companytrary it
postulates that the government may reject a higher tender
and accept a lower one only when there is valid reason lo do
so as for example where it is satisfied that the person
offering the lower
1  1971 3 s. c. c. 153. 1047
tender is on an overall companysideration preferable to the
higher tenderer. there must be some relevant reason for
preferring one tenderer to anumberher and if there is the
government can certainly enter into companytract with the former
even though his tender may be lower but it cannumber do so
arbitrarily or for extraneous reason. there was also one other decision of this companyrt in
state of orissa v. harinarayan jaiswal ors.  1  which was
strongly relied upon on behalf of the respondents. there the
respondents were the highest bidders at an auction held by
the orissa government through the excise companymissioner for
the exclusive privilege of selling by retail companyntry liquor
in some shops. the auction was held pursuant to an order
dated 6th january 1971 issued by the government of orissa
in exercise of the power companyferred under section 29 2  of
the bihar orissa excise act 1915 and clause  6  of this
order provided that numbersale shall be deemed to be final
unless companyfirmed by the state government who shall be at
liberty to accept or reject any bid without assigning any
reason therefor. the government of orissa did number accept
any of the bids made at the auction and subsequently sold
the privilege by negotiations with some other parties. one
of the companytentions raised on behalf of the petitioners in
that case was that the power retained by the government to
accept or reject many bid without any reason therefor was
an arbitrary power violative of articles 14 and 19 1   g . this companytention was negatived and hegde j. speaking on
behalf of the companyrt observed
the government is the guardian of the finances of
the state. it is expected to protect the financial
interest of the state. hence quite naturally the
legislature has empowered the government to see that
there is numberleakage in its revenue. it is for the
government to decide whether the price offered in on
auction sale is adequate. while accepting or rejecting
a bid it is merely performing an executive function. the companyrectness of its companyclusion is number open to
judicial review. we fail to see how the plea of
contravention of article 19 1  g  or article 14 can
arise in these cases. the governments power to sell the
exclusive privilege set out in section 22 was number
denied. it was also number disputed that these privileges
could be sold by public auction. public auctions are
held to get the best possible price. once these aspects
are recognised there appears to be numberbasis for
contending that the owner of the privileges
 1  1972 2 s.c.c. 36. 1048
in question who had offered to sell them cannumber decline
to accept the highest bid if he thinks that the price
offered is inadequate. it will be seen from these observations that the validity of
clause  6  of the order dated 6th january 1971 was upheld
by this companyrt on the ground that having regard to the object
of holding the auction namely to raise revenue the
government was entitled to reject even the highest bid if
it thought that the price offered was inadequate. the
government was number bound to accept the tender of the person
who offered the highest amount and if the government
rejected all the bids made at the auction it did number
involve any violation of article 14 or 19 1  g . this is a
self-evident proposition and we do number see how it can be of
any assistance to the respondents. the last decision to which reference was made on behalf
of the respondents was the decision in p. r. quenin v. m. k.
tendel 1  this decision merely reiterates the principle laid
down in the earlier decisions in trilochan mishra v. state
of orissa  supra  and state of orissa v. harinarayan jaiswal
 supra  and points out that a companydition that the government
shall be at liberty to accept or reject any bid without
assigning any reason therefor is number violative of article 14
and that in matters relating to companytracts with the
government the latter is number bound to accept the tender of
the person who offers the highest amount. number where does it
say that such a companydition permits the government to act
arbitrarily in accepting a tender or that under the guise or
pretext of such a companydition the government may enter into a
contract with any person it likes arbitrarily and without
reason. in fact the companyrt pointed out at the end of the
judgment that the act of the government was number shown to be
vitiated by such arbitrariness as should call for
interference by the companyrt recognising clearly that if the
rejection of the tender of the 1st respondent were
arbitrary the companyrt would have been justified in striking
it down as invalid. number this rule flowing as it does from article 14
applies to every state action and since state is defined
in article 12 to include number only the government of india
and the government of each of the states but also all
local or other authorities within the territory of india or
under the companytrol of the government of india it must apply
to action of other authorities and they must be held
subject to the same companystitutional limitation as the
government. but the question arises what are the other
authorities companytemplated by article 12 which fall within
the definition of state ? on this ques-
 1  1974 3 s. c. r. 64. 1049
tion companysiderable light is thrown by the decision of this
court in rajasthan electricity board v. mohan lal 1 . that
was a case in which this companyrt was called upon to companysider
whether the rajasthan electricity board was an authority
within the meaning of the expression other authorities in
art. 12. bhargava j. delivering the judgment of the
majority pointed out that the expression other authorities
in art. 12 would include all companystitutional and statutory
authorities on whom powers are companyferred by law. the learned
judge also said that if any body of persons has authority to
issue directions the disobedience of which would be
punishable as a criminal offence that would be an
indication that that authority is state. shah j. who
delivered a separate judgment agreeing with the companyclusion
reached by the majority preferred to give a slightly
different meaning to the expression other authorities. he
said that authorities companystitutional or statutory would
fall within the expression other authorities only if they
are invested with the sovereign power of the state namely
the power to make rules and regulations which have the force
of law. the ratio of this decision may thus be stated to be
that a companystitutional or statutory authority would be within
the meaning of the expression other authorities if it has
been invested with statutory power to issue binding
directions to third parties the disobedience of which would
entail penal companysequence or it has the sovereign power to
make rules and regulations having the force of law. this
test was followed by ray c.j. in sukhdev v. bhagat ram
 supra . mathew j. however in the same case propounded a
broader test namely whether the statutory companyporation or
other body or authority claimed to fall within the
definition of state is as instrumentality or agency of
government if it is it would fall within the meaning of
the expression other authorities and would be state. whilst accepting the test laid down in rajasthan electricity
board v. mohan lal  supra  and followed by ray c. j. in
sukhdev v. bhagat ram  supra  we would for reasons already
discussed prefer to adopt the test of governmental
instrumentality or agency as one more test and perhaps a
more satisfactory one for determining whether a statutory
corporation body or other authority falls within the
definition of state. if a statutory companyporation body or
other authority is an instrumentality or agency of
government it would be an authority and therefore state
within the meaning of that expression in article 12.
it is necessary at this stage to refer to a few
decisions of this companyrt which seem to bear on this point and
which require a little
 1  1967 3 s c r 377
11-904 sci/79
1050
explanation. the first is the decision in praga tools
corporation v. c. a. imanuel.  1  this was a case in which
some of the workmen sought a writ of mandamus against praga
tools companyporation which was a companypany with 56 per cent of
its share capital held by the centra1 government 32 per
cent by the andhra pradesh government and 12 per cent by
private individuals. the companyrt held that a writ of mandamus
did number lie because praga tools companyporation being a number
statutory body and one incorporated under the companypanies act
there was neither a statutory number a public duty imposed on
it by a statute in respect of which enforcement companyld be
sought by means of mandamus number was there in its workmen
any companyresponding legal right for enforcement of any such
statutory or public duty.  emphasis supplied . it is
difficult to see how this decision can be of any help in
deciding the present issue before us. this was number a case
where praga tools companyporation claimed to be an
instrumentality of government or an authority within the
meaning of article 12. the only question was whether a writ
of mandamus companyld lie and it was held that since there was
numberduty imposed on praga tool companyporation by statute no
writ of mandamus companyld issue against it. the second decision to which we must refer is that in
heavy engineering mazdoor union v. state of bihar 2 . the
question which arose in this case was whether a reference of
an industrial dispute between the heavy engineering
corporation limited  hereinafter referred to as the
corporation  and the union made by the state of bihar
under section 10 of the industrial disputes act 1947 was
valid. the argument of the union was that the industry in
question was carried on under the authority of the central
government and the reference companyld therefore be made only
by the central government. the companyrt held that the words
under the authority mean pursuant to the authority such
as where an agent or a servant acts under of pursuant to the
authority of his principal or master and on this view the
court addressed itself to the question whether the
corporation companyld be said to be carrying on business
pursuant to the authority of the central government. the
answer to this question was obviously numberbecause the
corporation was carrying on business in virtue of the
authority derived from its memorandum and articles of
association and number by reason of any authority granted by
the central government. the companyporation in carrying on
business was acting on its own behalf and number on behalf of
the central government and it was therefore number a servant or
agent of the central government in the sense that its
actions would bind the central government. there
 1  1969 3 s. c. r. 773
 2  1969 3 s. c. r 995. 1051
was numberquestion in this case whether the companyporation was an
instrumentality of the central government and therefore an
authority within the meaning of article 12. we may point
out here that when we speak of a companyporation being an
instrumentality or agency of government we do number mean to
suggest that the companyporation should be an agent of the
government in the sense that whatever it does should be
binding on the government. it is number the relationship of
principal and agent which is relevant and material but
wether the companyporation is an instrumentality of the
government in the sense that a part of the governing power
of the state is located in the companyporation and though the
corporation is acting on its own behalf and number on behalf of
the government its action is really in the nature of state
action. this decision dealing with an altogether different
point has numberbearing on the present issue. we may then refer to the decision in s. l. aggarwal v.
general manager hindustan steel limited.  1  this decision
has also numberrelevance to the point at issue before us since
the only question in that case was wether all assistant
surgeon in the employment of hindustan steel limited companyld
be said to be holding a civil post under the union or a
state so as to be entitled to the protection of article
311 2  of the companystitution. the companyrt held that hindustan
steel limited was number a department of the government number
were its employees holding posts under the state within the
meaning of article 311 2 . the decision was clearly right
and indeed it companyld number be otherwise since hindustan steel
limited which was a distinct and independent legal entity
was number a department of the government and companyld number be
regarded as state for the purpose of article 311 2 . it may
be numbered that the companyrt was number companycerned with the question
whether hindustan steel limited was an authority within
the meaning of articlc 12.
lastly we must refer to the decision in sarbhajit
tewari v. union of india ors.  2  where the question was
whether the companyncil of scientific and industrial research
was an authority within the meaning of article 12. the
court numberdoubt took the view on the basis of facts relevant
to the companystitution and functioning of the companyncil that it
was number an authority but we do number find any discussion in
this case as to what are the features which must be present
before a companyporation can be regarded as an authority
within the meaning of article 12. this decision does number lay
down any principle or test for the purpose of determining
when a companyporation can be said to be an authority. if at
all any test can be gleaned from the decision it is
 1  1970 3 s. c. r. 363.  2  1975 1 s. c. c. 485. 1052
whether the companyporation is really an agency of the
government. the companyrt seemed to hold on the facts that the
council was number an agency of the government and was
therefore number an authority. we may examine in the light of this discussion
whether the 1st respondent namely the international
airport authority of india can be said to be an authority
falling within the definition of state in article 12. it
is necessary to refer to some of the provisions of the
international airport authority act 1971  hereinafter
referred to as the act  for the purpose of determining this
question. sub-section  1  of section 3 of the act provides
that the central government shall companystitute an authority to
be called the international airport authority of india to
whom we shall hereafter refer as the 1st respondent. sub-
section  2  states that the 1 st respondent shall be a body
corporate having perpetual succession and a companymon seal and
sub-section  3  enacts that the ist respondent shall companysist
of a chairman to be appointed by the central government the
director general of civil aviation exofficio and number less
than six and number more than thirteen members to be appointed
by the central government. the term of office of every
member of the 1st respondent is prescribed by sub-section
 1  of section 5 to be 3 years but the central government
is given under the proviso power to terminate the
appointment of any member who is number a servant of the
government after giving him numberice as also to terminate at
any time the appointment of any member who is a servant of
the government. the power to remove a member in certain
specified circumstances is also vested in the central
government under section 6. section 32 sub-section  1
provides that as from the date appointed by the central
government all properties and other assets vested in the p
central government for the purposes of the airport and
administered by the director general of civil aviation
immediately before such date shall vest in the 1st
respondent and all debts obligations and liabilities
incurred all companytracts entered into and all matters and
things engaged to be done by with or for the central
government immediately before such date shall be deemed to
have been incurred entered into and engaged to be done by
with or for the 1st respondent. this sub-section also says
that all number-recurring expenditure incurred by the central
government for or in companynection with the purposes of the
airport upto the appointed date and declared to be capital
expenditure by the central government shall be treated as
the capital provided by the central government to the 1st
respondent and all sums of money due to the central
government in relation to the airport immediately before the
appointed date shall be deemed to be due to the 1st
respondent. the 1st respondent is also given the power to
institute or companytinue all suits
1053
and other legal proceedings instituted or which companyld have
been instituted by or against the central government for any
matter in relation to the airport and every employee holding
any office under the central government immediately before
the appointed date solely or mainly for or in companynection
with the affairs of the airport shall be treated as on
deputation with the 1st respondent. sub-section  1  of
section 12 also enacts similar provisions with regard to the
air navigation services and the buildings used exclusively
for such services immediately before the appointed date. the
functions of the 1st respondent are specified in section 16
sub-section  l  provides that subject to the rules if any
made by the central government in this behalf it shall be
the function of the 1st respondent to manage the airports
efficiently and sub-section  2  casts an obligation on the 1
st respondent to provide at the airports such services and
facilities as are necessary or desirable for the efficient
operation of air transport services and certain specific
functions to be performed by the 1st respondent are
particularised in sub-section  3 . these. functions were
until the appointed date being carried out by the central
government but number under section 16 they are transferred to
the st respondent. section 20 provides that after making
provision for reserve funds bad and doubtful debts
depreciation in assets and an other matters which are
usually provided for by companypanies the 1st respondent shall
pay the balance of its annual net profits to the central
government. section 21 requires the 1st respondent to submit
for the approval of the central government a statement of
the programme of its activities during the forthcoming
financial year as well as its financial estimate in respect
thereof at least three months before the companymencement of
each financial year and section 24 provides that the
accounts of the 1st respondent shall be audited annually by
the companyptroller and auditor general and the accounts as
certified by the companyptroller and auditor general or any
other person appointed by him in this behalf together with
the audit report thereon shall be forwarded to the central
government and the central government shall cause the same
to be laid before both houses of parliament. the 1st
respondent is also required by section 25 to prepare and
submit to the central government as soon as may be after
the end of each financial year a report giving an account
of its activities during the financial year and this report
has to be laid before both houses of parliament by the
central government. the officers and employees of the 1st
respondent are deemed by section 28 to be public servants
and section 29 gives them immunity from suit prosecution or
other legal proceeding for anything in good faith done or
intended to he done in pursuance of the act or any rule or
regulation made under it. section 33 companyfers power on the
central government
1054
to temporarily divest the 1st respondent from the management
of any airport and to direct the 1st respondent to entrust
such management to any other person. the central government
is also empowered by section 34 lo supersede the 1st
respondent under certain specified circumstances. section 35
gives power to the central government to give directions in
writing from time to time on questions of policy and
provides that the 1 st respondent shall in the discharge of
its functions and duties be bound by such directions. section 36 companyfers rule making power on the central
government for carrying out the purposes of the act and
power to make regulations is companyferred on the 1st respondent
under section 37. section 39 provides that any regulation
made by the 1st respondent under any of the clauses  g  to
 m  of sub-section  2  of section 37 may make it penal to
contravene such regulation. lt will be seen from these provisions that there are
certain features of the 1 st respondent which are eloquent
and throw companysiderable light on the true nature of the 1st
respondent. in the first place the chairman and members of
the 1st respondent are all persons numberinated by the central
government and the central government has also the power to
terminate their appointment as also to remove them in
certain specified circumstances. the central government is
also vested with the power to take away the management of
any airport from the 1st respondent and to entrust it to any
other person or authority and for certain special reasons
the central government can also supersede the ist
respondent. the central government has also power to give
directions in writing from time to time on questions of
policy and these directions are declared binding on the 1st
respondent. the 1st respondent has numbershare capital but the
capital needed by it for carrying out its functions is
provided wholly by the central government. the balance of
the number profit made by the ist respondent after making
provision for various charges such as reserve funds had
and doubtful debts depreciation in assets etc. does number
remain with the 1st respondent and is required to be paid
over lo the central government. the 1st respondent is also
required to submit to the central government for its
approval a statement of the programme of its activities as
also the financial estimate and it must follow as a
necessary companyollary that the 1 st respondent can carry out
only such activities and incur only such expenditure as is
approved by the central government. the audited accounts of
the 1st respondent together with the audit report have to be
forwarded to the central government and they are required to
be laid before both houses of parliament. so far as the
functions of the 1st respondent are companycerned the entire
department of the central government relating to the
administration of airports and air nevigation services
together with its
1055
properties and assets debts obligations and liabilities
contracts causes a of action and pending litigation is
transferred to the 1st respondent and the 1st respondent is
charged with carrying out the same functions which were
until the appointed date being carried out by the central
government. the employees and officers on the 1st respondent
are also deemed to be public servants and the 1st respondent
as well as its members officers and employees are given
immunity for anything which is in good faith done or
intended to be done in pursuance of the act or any rule or
regulation made under it. the 1st respondent is also given
power to frame regulations and to provide that companytravention
of certain specified regulations shall entail penal
consequence. these provisions clearly show that every test
discussed above is satisfied in the case of the 1st
respondent and they leave numberdoubt that the 1st respondent
is an instrumentality or agency of the central government
and falls within the definition of state both on the
narrow view taken by the majority in sukhdev v. bhagat ram
 supra  as also on the broader view of mathew j. adopted
by us. it is therefore obvious that both having regard to
the companystitutional mandate of article 14 as also the
judicially evolved rule of administrative law the 1st
respondent was number entitled to act arbitrarily in accepting
the tender of the 4th respondents but was bound to companyform
to the standard or numberm laid down in paragraph 1 of the
numberice inviting tenders which required that only a person
running a registered iind class hotel or restaurant and
having at least s years experience as such should be
eligible to tender. it was number the companytention of the
appellant that this standard or numberm prescribed by the 1st
respondent was discriminatory having numberjust or reasonable
relation to the object of inviting tenders namely to award
the companytract to a sufficiently experienced person who would
be able to run efficiently a iind class restaurant at the
airport. admittedly the standard or numberm was reasonable and
number-discriminatory and once such a standard or numberm for
running a iind class restaurant should be awarded was laid
down the 1st respondent was number entitled to depart from it
and to award the companytract to the 4th respondents who did number
satisfy the companydition of eligibility prescribed by the
standard or numberm. if there was numberacceptable tender from a
person who satisfied the companydition of eligibility the 1st
respondent companyld have rejected the tenders and invited fresh
tenders on the basis of a less stringent standard or numberm
but it companyld number depart from the standard or numberm prescribed
by it and arbitrarily accept the tender of the 4th
respondents. when the 1st respondent entertained the tender
of the 4th respondents even though they did number have 5
years experience of running a iind class
1056
restaurant or hotel denied equality of opportunity to
others similarly situate in the matter of tendering for the
contract. there might have been many other persons in fact
the appellant himself claimed to be one such person who did
number have 5 years experience of running a iind class
restaurant but who were otherwise companypetent to run such a
restaurant and they might also have companypeted with the 4th
respondents for obtaining the companytract but they were
precluded from doing so by the companydition of eligibility
requiring five years experience. the action of the 1st
respondent in accepting the tender of the 4th respondents
even though they did number satisfy the prescribed companydition of
eligibility was clearly discriminatory since it excluded
other person similarly situate from tendering for the
contract and it was plainly arbitrary and without reason. the acceptance of the tender of the 4th respondents was in
the circumstances invalid as being violative of the equality
clause of the companystitution as also of the rule of
administrative law inhibiting arbitrary action. number on this view we should have ordinarily set aside
the decision of the- 1st respondent accepting the tender of
the 4th respondents and the companytract resulting from such
acceptance but in view of the peculiar facts and
circumstances of the present case we do number think it would
be a sound exercise of discretion on our part to upset that
decision and void the companytract. it does appear from the
affidavits filed by the parties that the appellant has no
real interest in the result of the litigation but has been
put up by a. s. irani for depriving the 4th respondents of
the benefit of the companytract secured by them. we find that a
number of proceedings have been instituted for this purpose
from time to time by a. s. irani either personally or by
instigating others to take such proceedings. the first salvo
in the battle against the 4th respondents was fired by k. s.
irani proprietor of cafe excelsior who filed a suit
challenging the decision of the 1st respondent to accept the
tender of the 4th respondents but in this suit he failed to
obtain an interim injunction and his appeal was dismissed by
the high companyrt on 19th october 1977. it is significant that
when the tenders were opened in the office of the airport
director cafe excelsior was represented by a. s. irani
which shows that either cafe excelsior was a numberinee of a.

irani or in any event k. s. irani proprietor of cafe
excelsior was closely companynected with a. s. irani. moreover
it is interesting to numbere that though the tender of the 4th
respondents was accepted as far back as 19th april 1977 k.

irani did number adopt any proceedings immediately but filed
the suit only after a. s. irani was informed by the airport
director on 22nd august 1977 that a final order has been
received from the ministry
1057
requiring a. s. irani to immediately close down his
restaurant and snack bars. it is also a circumstance number
without significance that a. s. irani did number immediately
take any proceeding for challenging the acceptance of the
tender of the 4th respondents but filed a suit in his own
name only after the appeal of k. s. irani was dismissed by
the high companyrt on 19th october 1977. these circumstances
clearly indicate that the suit was filed by k. s. irani at
the instance of a. s. irani or in any event in companycert with
him and when the suit of k. s. irani failed to achieve the
desired result a. s. irani stepped into the arena and filed
his own suit. this suit was for a mandatory injunction
seeking removal of the two snack bars which had in the
meantime been put up by the 4th respondents pursuant to the
acceptance of their tender by the 1st respondent. but in
this proceeding also a. s. irani failed to obtain an ad-
interim injunction. it was only after the failure to obtain
interim relief in these two proceedings one by k. s. irani
and the other by a. s. irani that the appellant filed the
present writ petition in the high companyrt of bombay
challenging the decision of the 1st respondent to accept the
tender of the 4th respondents. number it appears from the
record that the appellant was at the material time
conducting a restaurant called royal restaurant and store
which was owned in partnership by three persons namely j.

irani k. m. irani and g. s. irani. g. s. irani is the
brother of a. s. irani and he was managing and looking after
the restaurant of a. s. irani at the airport. it would
therefore be a fair inference to make that the appellant
was well companynected with a. s. irani and from the manner in
which proceedings with a view to thwarting the attempt of
the 4th respondents to obtain the benefit of their companytract
have been adopted one after the other in different names it
does appear that the appellant has filed the writ petition
at the instance of a. s. irani with a view to helping him to
obtain the companytract for the restaurant and the snack bars. it is difficult to understand why the appellant should have
waited until 8th numberember 1977 to file the writ petition
when the tender of the 4th respondents was accepted as far
hack as 19th april 1977. the explanation given by the
appellant is that he was number aware of the acceptance of the
tender of the 4th respondents but that is a rather naive
explanation which cannumber be easily accepted it is number
possible to believe that the appellant who was so well
connected with a. s. irani and g. s. irani did number knumber that

s. irani had failed to obtain the companytract for running
the restaurant and the snack bars and that this companytract had
been awarded to the 4th respondents as a result of which a.

irani was being pressed to close down his restaurant and
snack bars. we have grave doubts whether this writ petition
was companymenced by the appellant bona fide
1058
with a view to protecting his own interest. moreover the
writ petition was filed by the appellant more than five
months after the acceptance of the tender of the 4th
respondents and during this period the 4th respondents
incurred companysiderable expenditure aggregating to about rs. 125000/- in making arrangements for putting up the
restaurant and the snack bars and in fact set up the snack
bars and started running the same. it would number be most
inequitous to set aside the companytracts of the 4th respondents
at the instance of the appellant. the position would have
been different if the appellant had filed the writ petition
immediately after the acceptance of the tender of the 4th
respondents but the appellant allowed a period of over five
months to elapse during which the 4th respondents altered
their position.