# RAMANA DAYARAM SHETTY v. THE INTERNATIONAL AIRPORT AUTHORITY OF INDIA AND ORS

- **Citation:** [1979] 3 S.C.R. 1014
- **Court:** Supreme Court of India
- **Decided:** 1979-05-04
- **Case number:** Civil Appeal No. 895 of 1978
- **Bench:** P. N. Bhagwati, V. D. Tulzapurkar, R. S. Pathak
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ramana-dayaram-shetty-v-the-international-airport-authority-of-india-and-ors-7730
- **Pages:** 45

## Headnote

International Airport Authority Act 1971-Whether an instrumentality of
State-Authority called for tenders for a iob-lj could accept a tender not
confonninR to conditions in notice.
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Administrative law-Statutory- body-When an instnunentality of State.
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The first respondent, by a public notice, invited tenders for putting up and
running a second class restaurant and two snack bars at the International Airport, Bombay. The notice stated in Paragraph (1) that. sealed tenders in the
prescribed form were invited from registered second class hoteliers
having
at least five years' experience for putting up and running a second cla-,s restaurant and two snack bars at the Bombay Airport for a period of three years.
Paragraph (8) stated that acceptance of the tender would rest v .. ·ith the Airport
Director who does not bind himself to accept ilny tender and reserYe~ to himself the right to reject all or any of the tenders received without as-.igning any
reasons therefor.
Out of the six tenders received only the tender of the 4th respoo.dents was
complete and offered the highest amount as licence fee.
All the otheI" tenders
were rejected because they were incomplete.
Since the fourth respondents did not satisfy the description of "registered
second class hoteliers having at least 5 years' experience" prescribed in paragraph (1) of the tender notice, the 1st respondent called upon the fourth respondents to produce documentary ewidence \Vhether they were registered second
class hotliers having at least 5 years' experience.
The fourth respondents
stated once again that they had considerable experience of catering for various
reputed commercial houses, clubs, messes and banks and that they had Eating
Houses C.atering Establishment (Canteen) Licence.
Satisfied with the information given by the fourth respondents, the first respondent accepted their tender
on the terms and conditions set out in its letter.
The aiipellant filed a writ petition before the High Court challenging the
decision of the first respondent in accepting the tender of the fourth respondents.
But it was rejected.
In appeal to this Court it was contended on behalf of the appellants that ( l)
the first respondent which is a public authority 'vas bound to give effect
to the most important condition of eligibility and acceptance of the tender by
the first respondent was in violation of the standard or norm of eligibility set
up by the first respondent and (2) had the appellant known that non-fulfilment
of tbe condition of eligibility would be no bar for considering a tender he ·too
would he.ve competed for obtaining the contract.
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R. D. SHETTY V. AIRPORT AUTHORITY
1015
The fourth respondents, on the other hand, contended that the requirement
that the tenderer must be a registered second grade hotlier was meaningless
because the grading is given by the Bombay City Municipal Corporation only
to hotels or resta·1irants and not to persons running them and, therefore there
could be no second grade hotlier; (2) the notice Setting out the conditions
of eligibility having had no stautory force, even if there was a departure from
the standard or norm of eligibility, it was not justiceablc and the first respondent was competent to give the conract to anyone it thought fit; and (3) the
Airport Authority reserved to itself the right to reject all or any of the tenders without assigning any reasons and, therefore, it \\1as competent to it to
reject all the tenders or negotiate with any person it considered fit to enter into
a contract.
HELD
The action of the first respondent in accepting the tender of the
fourth respondents, who did not satisfy the standard or norm, was clearly discriminatory since it excluded other persons similarly situate from tendering for
the contract and it was arbitrary and without reason.
Acceptance of the tender
·was invali4 as being violative of the equality c'Iause of the Constitution as also
of administrative la\V inhibiting arbitrary action

## Text

_Characters 0–39,677 of 131,109. This is a partial read: ask again with offset=39677 for what follows._

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RAMANA DAYARAM SHETTY
v.
THE INTERNATIONAL AIRPORT AUTHORITY OF INDIA AND
ORS.
May 4, 1979.
[P. N. BHAGWATI, V. D. TULZAPURKAR AND R. S. PATHAK, JJ.]
International Airport Authority Act 1971-Whether an instrumentality of
State-Authority called for tenders for a iob-lj could accept a tender not
confonninR to conditions in notice.
C
Administrative law-Statutory- body-When an instnunentality of State.
I)
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The first respondent, by a public notice, invited tenders for putting up and
running a second class restaurant and two snack bars at the International Airport, Bombay. The notice stated in Paragraph (1) that. sealed tenders in the
prescribed form were invited from registered second class hoteliers
having
at least five years' experience for putting up and running a second cla-,s restaurant and two snack bars at the Bombay Airport for a period of three years.
Paragraph (8) stated that acceptance of the tender would rest v .. ·ith the Airport
Director who does not bind himself to accept ilny tender and reserYe~ to himself the right to reject all or any of the tenders received without as-.igning any
reasons therefor.
Out of the six tenders received only the tender of the 4th respoo.dents was
complete and offered the highest amount as licence fee.
All the otheI" tenders
were rejected because they were incomplete.
Since the fourth respondents did not satisfy the description of "registered
second class hoteliers having at least 5 years' experience" prescribed in paragraph (1) of the tender notice, the 1st respondent called upon the fourth respondents to produce documentary ewidence \Vhether they were registered second
class hotliers having at least 5 years' experience.
The fourth respondents
stated once again that they had considerable experience of catering for various
reputed commercial houses, clubs, messes and banks and that they had Eating
Houses C.atering Establishment (Canteen) Licence.
Satisfied with the information given by the fourth respondents, the first respondent accepted their tender
on the terms and conditions set out in its letter.
The aiipellant filed a writ petition before the High Court challenging the
decision of the first respondent in accepting the tender of the fourth respondents.
But it was rejected.
In appeal to this Court it was contended on behalf of the appellants that ( l)
the first respondent which is a public authority 'vas bound to give effect
to the most important condition of eligibility and acceptance of the tender by
the first respondent was in violation of the standard or norm of eligibility set
up by the first respondent and (2) had the appellant known that non-fulfilment
of tbe condition of eligibility would be no bar for considering a tender he ·too
would he.ve competed for obtaining the contract.
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R. D. SHETTY V. AIRPORT AUTHORITY
1015
The fourth respondents, on the other hand, contended that the requirement
that the tenderer must be a registered second grade hotlier was meaningless
because the grading is given by the Bombay City Municipal Corporation only
to hotels or resta·1irants and not to persons running them and, therefore there
could be no second grade hotlier; (2) the notice Setting out the conditions
of eligibility having had no stautory force, even if there was a departure from
the standard or norm of eligibility, it was not justiceablc and the first respondent was competent to give the conract to anyone it thought fit; and (3) the
Airport Authority reserved to itself the right to reject all or any of the tenders without assigning any reasons and, therefore, it \\1as competent to it to
reject all the tenders or negotiate with any person it considered fit to enter into
a contract.
HELD
The action of the first respondent in accepting the tender of the
fourth respondents, who did not satisfy the standard or norm, was clearly discriminatory since it excluded other persons similarly situate from tendering for
the contract and it was arbitrary and without reason.
Acceptance of the tender
·was invali4 as being violative of the equality c'Iause of the Constitution as also
of administrative la\V inhibiting arbitrary action. [1056 C]
(a) What paragraph (1) of the notice required was that only a person
rum1ing a registered second class hotel or restaurant and having at least 5 years'
experience as such should be eligible to submit the tender.
The test of
eligibility laid down in this paragraph was an objective test and not a subjective
one..
If a person submitting the tender did not have atleast five years' expe~
rience of running a second class hotel, he was eligible to submit the tender
and it would not avail him to say that though he did not satisfy this condition
he was otherwise capable of running a second class restaurant and therefore
should be considered.
This \Vas in fact how the first respondent unders_tood
this condition of eligibility.
The first respondent did not regard this requirement as meaningless or unnecessary and wanted to be satisfied that the fourth
respondents had fulfilled this requirement. The fourth respondents were neither
running a second grade hotel or. restaurant nor did they have five years'
experience of running such a hotel or restaurant.
Therefore the fourth res-
·pondents did not satisfy the condition of eligibility ltaid down in paragraph( 1)
of the noice. [1028 B·H]
(b) It is not possible to justify the action of the first respondent on the
ground that it could have achieved the same result by rejecting all the tenders
and entering into direct negotiations with the fourth respondents.
Although
there wa'i no statutory or administrative rule requiring the first respondent to
give a contract only by inviting tenders and that on the terms of paragraph 8
of the tender notice, it was not bound to accept any tender, the first respondent
did not reject the tenders outright and enter into direct negotiation wit~ the
fourth respondents for awarding the contract. The process of awarding
a
contract by inviting tenders was not terminated or abandoned by the first respondent by rejecting all the tenders but in furtherance of the process the tender
of the fourth respondents was accepted by the first respondent. Nor "'·as the
contract given to the fourth respondents a.s a result of direct negotiations.
[1029 D-G]
2(a) Today v;rith tremendous expansion of welfare and social service functions, incre~ing control of materi2'1 and economic resources and large
scale
assumption of industrial and comm'ercial activities by the State, the power of
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SUPREME COURT REPORTS
[1979] 3 S.C.R.
the executive Government to affect the lives of the people is steadily growing.
The attainment of socio-economic justice bein~ a conscious end of State policy,
there is a vast and inevitable increase in the frequency with which ordinary
citizens come into relatioJ!ship of direct enc~unter ,with State power~holders.
This renders it necessary to structure and restrict the power of the executive
Government so as to prevent its arbitrary application or exercise.
Whatever
be the concept of the rule of la\\.', there is substantial agreement in juristic
thought that the great purpose of the rule of law notion is the protection of
the individual against arbitrary exercise of power, wherever it is found. It is
unthinkable that in o. 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 Governn1ent must be
informed with reason and should be free from arbitrariness. That is the very
essence of the rule of law and its bare minimal requirement.
And to the application of this principle it makes no differen~e whether the exercise of the power
involves affectation of some right or denial of some privilege.
[1031 F-H]
(b) To·day the Government, in a \velfare State:, is the regulator and dispenser of special services and provider of a large number of benefits.
The
valuables dispensed by Governn1ent take n1any forms, but they all share one
cl1aractcrfa,tic.
They are steadily taking the place of traditional forms of wealth.
These valuables which derive from relationships- to Government are of many
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kinds: leases, licences, contracts and so forth.
With the iOCreasing 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
forn1s of wealth may be in the nature of legal rights but the large majority of
them are in the nature of privileges.
But on that account, it cannot be so.id
that they do not enjoy any legal protection nor can they be regarded as
gratuity furnished by the State so thnt the State may withhold, grant or revoke
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it at its pleasure. [1032 E-H]
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(c) The law has not been slow to recognize the importance of this ne\v
kind of wealth and the need to protect individual interest in it and with that end
in view, it has developed new forms of protection. Some interests in Government largess, formerly regarded as privileges, have been recognized as rights
\Vhile others have been given legal protilction not only by forging proceJurr.-l
safeguards but also by confining/structuring and checking Government discretion in the matter of grant of such largess. The discretion of the Government
has been held to be not unlimited in that the Government cannot give or \vith~
hold largess in its arbitrary discretion or at its sweet will. [1033 C-D]
Viterolli
v.
Satan 359 U.S. 535: 3 Law Ed.
(Second
Series) 1012,
Erusian Equipn1ent and Chen1icals Lrcl. v. State of West Bengal, [1975] 2 SCR,
674 referred to.
(d) Therefore, where the Government is dealing \\lith the public, whether
by way of giving jobs or entering into contracts or issuing quotas or licence<>
or granting other· forms of largess, the Government cannot act arbitrarily at its
sweet will and, like a private individual, deal \Vith any person it pleases, but
its action must be in conformity with standard or norm which is not arbitrary,
irrational or irrelevant.
The power or discretion of the GoverJ?,ment in the
matter of grant of largess including award of jobs, contracts etc., must be confined and structured by rational, relevant and non-discriminatory standard or
norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck
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R. D. SHETTY V, AIRPORT AUTHORITY
1 0 I 7
down, unless it can be shown by the Government that the departure was not
arbitrary, but was based on some valid principle \Vhich in itself was non-irraticnal, unreasonable or discriminatory. [1034 F-H]
(e) The Government which represents the executive authority of the State
may act through the instrumentality or agency of natural persons or it may
empk>y the instrumentality or agency of juridicinl persons to carry out its functions. With the advent of the welfure state the civil service, which traditionalJy
carried out functions of Government through natural persons, was found inadequate to handle the new tasks of specialised and highly technical character.
To fill the gap it became necessary to forge a new instrumentality or administrative device for handling these new problems and that is done by public corporations \vhich has become the third arm of the Government. They
are
regarded as agencies of the Government. In pursuance of the industrial policy
resolution of the Government of India corporations were created by the Government for setting up and management of public enterprises and carrying out
public functions. The corporations so created, acting as
instrumentality
or
ogency of Government, would obviously be subject to the same limitations in
the field of constitutional and administrative law as Government itself though
in the eye of law they would be distinct and independent legal entities.
Jf
Government, acting through its officers is subject to certain constitutional and
public la\v limitations, it must follow a fortiori that Government, -through the
instrumentality or agency of corporations, should equally be subject to the same
limitations. But the question is how to determine whether a corporation is
acting as instrumentality or agency of Government. [1035 A-C, F-HJ
3(a) The factors for
d~termining whether a corporation bas becon1e an
instrumentality or agency of the Government are; does the State give any finan~
cial assistance and if so what is the magnitude of such assistance ? Is there
any control of the management and policies of the corporation by the State,
and '~'hat i:oi the nature and extent of such control? Does the corporation enjoy
any State conferred or State protected monopoly status and whether the functions carried ~out by the corporation are nublic functions closely related
to
governmental functions?
It is not ~io;e to particularise all the i-elevant factors but no sing]e factor will yield a sansfoctory answer, to the question and
the court \viU have to consider the cumulative effect of these various factors
and ~stablish it by its decision on the basis of a particularised enquiry
into
facts and circumstances of each case. [1041 B-EJ
(b) Sukhdev v. Bhagatram [1975] 3 S.C.R. 619 at 658 explained, Kerr
v. Eneck Pratt Free Library, 149 F. 2d 212, Jack:Jon v. Metropolitan Edison
Go. 419 U.S. 345; 42 L.ed. 2d 477, Evans v. Newton 382 U.S. 296; 15 L.•d.
2d 373, Pfizer v. Ministry of Health [1964] 1 Ch. 614, New York v. United
!!tales 326 U.S. 572, Cf. Helvering v. Gerhardt 304 U.S. 405, 426, 427 referred
to .
(c) Where a corporation i:i; an irutrumentality or agency of Government
it would be subject to some constitutional or public law Jimitations as Government.
The rule inhibiting arbitrary action by Government must apply equaJly
where such corporation is dealing with the public and it cannot act arbitrarily
and enter into relationship with any person it lit~ at it! sweet will.
Its action
must be in conformity with so111e principlt! which meets the test of reason and
relevance. (1041 HJ
9'-409 SCI /79
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SUPREME COURT REPORTS
[1979] 3 S.C.R.
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Rajastha11
Electricity Board
v. Mohan Lal
[1967] 3 S.C.R. 377,
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Sukhdev v. Bhagatram [1975) 3 S.C.R. 619 at 658 followed.
Praga Tools Corporation v. C.A. lnianuel [1969] 3 S.C.R. 773, lfeavy Engineering Mazdoor Union v. State of Bil1ar [1969] 3 S.C.R. 995, S. L. Aggarwal
v. General lllanager, Hindustan Steel Li1nited [1970] 3 SCR 363, Sarbhajit
Tewmi v. Union of India & Ors. [1975) 1 SCC 485; held inapplicable.
(<l) lt is ·wen established that Art. 14 requires that State action must not
be arbitrary and must be based on some rational and relevant principle which
is n6n-discriminatory. It must not be guided by extraneous or irrelevant coniiderations. The State
cannot act arbitrarily in entering
into relationship,
contractual or otherwise, with a third party. Its action must conform to some
sta.Rdard or norm which is rational and non-discriminatory. [1042 C]
E. P. Rayappa v. State of Tamil Nadu [1974) 2 SCR 348, Maneka Gandhi
v. Union of India [1978) 2 S.C.R. 621, Rashbihari Panda v. State of
Orissa [1969) 3 S.C.R. 374, C. K. Achuthan v. State of Kera/a [1959)
S.C.R. 78, referred to.
Trilochan Mishra v. State of Orissa & ors. [1971 3 S.C.R. 153, State
of Orissa v. Harinarayan Jaiswal & ors. [1972[ 2 S.C.R. 36, Raiasthan
Eltctricity Board v. Mohan Lal [1967] 3 S.C.R. 377, Fraga Tools Corporation
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v. C. A. lmanuel [1969) 3 S.C.R. 773, Heavy Engineering Mazdaar Union v.
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State of Bihar [1969] 3 SCR, 995, S. L. Aggarwal v. General Manager,
Hindustan Steel Limited [1970] 3 SCR. 363, Sarbhajit Tewari v. Union bf India
& ors. [1975) 1 sec 485, held in applicable.
4(a) The lnterne.tional Airport Authority-Act, 1971 empowers the Central
Government to constitute an authority called the International Airport Authority. The salient features of the Act are: the Authority, which is a body corporate having perpetual succession and a common seal, consists of a Chairmen
and certain other Members who are appointed by the Central Government. The
Central Government has power to terminate the appointment or to remove a
member from the Board of the Authority. Although the Authority
bas
no
share capital of its own, capital needed by it for carrying out its functions is
provided wholly by the Central Government. All non-recurring expenditure
incurred by the Central Government for or in connection with the purposes
of the airports upto the appointed date and dec1a~-red to be capital expenditure
by the Central Government shall be treated as capital provided by the Central
Government _to the first respondent and all sums of money due to the Central
Government in relation to the airports immediately before the appointed date
shall be deemed to be due to the first respondent. The functions, which until
the appointed date were being carried out by the Central Government, were
transferred to the Airport Authority by virtue of s. 16. The first respondent,
according to s. 20, should pay the balance of its annual net profits to the
Central Government after making provision for reserve funds, bad and doubt·
ful debts, depreciation in assets and so on. The first respondent, under s. 21,
has to submit for the approval of the Central Government a statement of the
programme of its activities during the forthcoming financial year. Its accounts
are audited by the Comptroller and Auditor General and the audited accounts
shall be forwarded to the Central Government. The first respondent is required to submit an account of its activities during a financial year and this report
is laid before the Houses of Parliament by the Central Government. The
Central Government bas power to divest the first respondent temporarily from
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R. D. SHETTY V. AIRPORT AUTHORITY
1019
the management of any airport and direct it to entrust such manngement to any
other person.
llo'\\'er is conferred under s. 34 on the Central Government
to supersede the first respondent under certairi specified circumstances. Section
35 gives pO\VC'f to the Central Government to give directions in writing te> the
Airport Authority on questions of policy and the Airport Authority is bound
by such directions. Section 37 empowers the Airport Authority to make regulations.
Section 39 provides that contravention of any regulation made by the
Airport Authority is punishable.
[1052B-1054C]
(b) A conspectus of the provisions of the Act clearly sho\Vs that every test
Jaid down by this Court in deciding
whether a statutority authority comes
within the purview of Art. 12 of the Constitution is satisfied in the case of
the first respondent. They leave no room for doubt that it is an instrumentality
or agency of the Central Government and falls within the definition of State.
Therefore, having regard both to the constitutional mandate of Art. 14 and the
judicially evolved rule of administrative la\v, the first resp'!n<lent \Vas not
-entitled to act arbitrarily in accepting the tender of the fourth respondents but
was bound to conform to the standard or norm le.id down in paragraph 1 of the
notice inviting tenders. The standard or norm Jaid down by the notice waa
reasonable and non-discriminatory and once it is found that such a standard
or norm is laid down, the first respondent was not entitled to depart from it
and award the contract to the fourth respondents who did not satisfy the con·
dition of eligibility rrescribed by standard or norm. If none of the tenderers
satisfied the condition the first respondent could have rejected the tender and
invited fresh tenders on the basis of less stringent standard or norm, but it
could not depart from the prescribed standard or norm. [1055 E-A]
(c) In the instant case the appellant had no real interest in the result of
the litigation. There can be no doubt that the litigation was commenced by
the appellant not with a view to protecting his own interest, but had been put
up by others for depriving the fourth respondents of the benefit of the contract
secured by them. The Writ Petition was filed more than five months after the
acceptance of the tender and the position would have been different had tho
appellant filed it immediately after the acceptance of the tender. The fourth
respondents have incurred a large expenditure in making necessary arrangements
under the bona fide belief that their tender had been legally and validly accepted.. It would be· most inequitous to set aside the contract at the instance of the
appellant
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 895 of 1978.
Appeal by Special Leave from the Judgment and Order dated
23-1-1978 of the High Court at Bombay in Appeal No. 234/77 arising out of Misc. Petition No. 1582/77.
Ashnk H. Desai, Y. S. Chitale, Jai Chinai, P. G. Gokhale and
8. R. Agarwal for the Appellant.
G. B. Pai, 0. C. Mathur and D. N. Mishra for Respondent No. 1.
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SUPREME COURT REPORTS
[1979] 3 S.C.R.
F. S. Nariman, R. H. Dhebar, S. K. bholakia, h H. Yagnik and
B. V. Desai for Respondent No. 4.
The Judgment of the Court was delivered by
BHMWATI, J.-This appeal by special leave
raises
interesting
questions of Jaw in the area of public Jaw. What are the constitutional
obligations on the State when it takes action in exercise of its statutory
or executi>e power? Is the State entitled to deal with its property
in any manner it likes or award a contract to any person it chooses
without any constitutional limitations upon it'! What are the parameters of its statutory or executive power in the matter of awarding
a contract or dealing with its propery ''
These questions fell in the
sphere of both administrative law and
constitutional law and they
assume special significance in a mod.em welfare State which is committed to egalitarian values and dedicated to the rule of law.
But
these questions cannot be decided in the
abstract.
They can be
determined only against the back-ground of facts and hence '<;'c shall
proceed to State the facts giving rise to the appeal.
On or about 3rd January, 1977 a notice inviting tenders for putting up and running a second class restaurant and two Snack bars at
the International Airpofi at Bombay was issued by the 1st respondent
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which is a corporate body constituted under the International Airport
Authority Act, 43 of 1971.
The notice stated in the clearest terms
in paragraph (1) that "Sealed tmders in the prescribed form are hereby 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 fol' a period of 3 years".
The
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1 iatest point of time upto which the tenders could be submitted to the
1st respondent was stipulated in Paragraph 7 of the notice to be 12 p.m.
on 25th January, 1977 and it was provided that th~ tenders would
be opened on the same date at 12.30 hours.
Paragraph (8) of the
notice made it clear that "the acceptance of the tender will rest with
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the Airport Director who does not bind himself to accept any tender
and reserves to himself the right to reject all or any of the tenders
received without assigning any reasons therefor."
There were sLx
tenders received by the 1st respondent in response to the notice and
one of them was from the 4th respondents of offering a licence fee of
Rs. 6666.66 per month, and the others were from Cafe Mahim, CenH
tral Catering Service, one A. S. Irani, Cafe Seaside and Cafo Excelsior
offering progressiveiy oecreasing licence fee very much lower than
that offered by the 4th respondents.
The tenders were opened in the
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R. D. STIETTY v. AIRPORT AUTHORITY (Bhagwati, J.)
1021
office of the Airport Director at 12.30 p.m. on 25th January, 1977
and at that time the 4th respondents were represented by their sole
proprietor Kumaria. A. S. Irani was present on behalf of himself, Cafe
Mahim, Cafe Seaside and Cafe Excelsior and there was one representative of Central Catering Service.
The tenders of Cafe Mahim, Central Catering Service, Cafe Seaside and Cafe Excelsior were not complete since they were not accompanied by the respective income tax
certificates, affidav·its of immovable property and solvency certificates, as required by cl. (9) of the terms and conditions of the tender
form.
The tender of A. S. Irani was also not complete as it was not
accompanied by an affidavit of immovable property held by him and
solvency certificates. The only tender which was complete and fully
complied with the terms and conditions of the tender form was that
of the 4th respondents and the offer contained in that tender was also
the highest amongst all the tenders.
Now it is necessary to point out
at this stage that while submitting their tender the 4th respondents had
pointed out in their letter dated 24th January, 1977 addressed to the
Airport Director that they had 10 years' experience in catering to reputed commercial houses, training centres, banks and factories and
that they were also doing considerable outdoor catering work for
various institutions.
This letter showed that the 4th respondents had
experi·2nce only of running canteens and not restaurants and it appeared
that they did not satisfy the description of "registered IInd Class
Hotelier having at least 5 years' experience" as set out in paragraph
(1) of the notice inviting tendern.
The Airport Officer, therefore,
by his Jetter 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
Febrnary, 1977 that they had, in addition to what was set out in
their earlier letter dated 24th January, 1977, experience of running
canteens for Phillips India Ltd. and Indian Oil Corporation and moreover, they held Eating House Licence granted by the Bombay Munici·
pal Corporation since 1973 and had thus experience of 10 years in
the catering line.
It appears that before this letter of the 4th respondents could reach Airport Officer, another letter dated 22nd February, 1977 was addressed by the Airport Officer once again requesting
the 4th respondents to produce documentary evidence to show if they
were '"a registered IInd Class Hotelier having at least 5 years experience". The 4th respondents thereupon addressed another letl'er dated
26th February, 1977 to the Director pointing out that they had considerable experience of catering for various reputed commercial houses,
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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 Hold Janpath, Delhi and gradually risen to his
present position and that he had accordingly "experience equivalent
to that of a !Ind 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 respo1ident and by a letter
dated 19ti1 April, 1977 the !st respondent accepted the tender of the
4th respondents on the tei;ms and conditions set out in that letter.
The 4th respondents accepted these terms and conditions by their
letter dated 23rd April, 1977 and deposited with the 1st respondent
by way of security a sum of Rs. 39,999.96 in ~he 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 conser·
vancy 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 pre·
pared furniture, counters and showcases as also uniforms
for
the
staff, purchased inter alia deep freezers, water coolers, electrical appliances, icecrea1n cabinets, espresso coffee machines, crockery, cutlery and other article~ ;and things and also engaged the necessary
staff for the purpose of running the restaurant and the two Snack bars.
But the Ist respondent could not hand over possession of the req•1i·
site sites to _!he 4th respondents, since A. S. Irani was rnnning his
restaurant and snack bars on these sites under a previous contract
with the 1st respondent and though that contract had come to an
end, A. S. Irani did not deliver possession of these sites to the Ist
respondent.
The 4th respondents repeatedly requested the 1st respondent and the Airport Director who is the 2nd respondent in the
appeal, to hand over possession of the sites and pointed out to them
that the 4th reeeondents were incurring losses by reason of delay in
delivery of possession, but on account of the intransigence of A. S.
Irani the Ist respondent could not arrange to hand over possession of
the sites to the 4th respondents.
Meanwhile one K. S. Irani who owned Cafe Excelsior filed Suit
No. 6544 of 1977 in the City Civil Court, Bombay against the resH
pondenls challenging the decision of the 1st respondent to accept the
tender of the 4th respondents and took out a notice of motion for
res'.rair.;ng the !st respondent from taking any further steps pursuant \o
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R. D. SHETTY v. AIRPORT AUTHORITY (Bhagwati, I.)
1023
the acceptance of the tender. K. S. Irani obtained an ad-interim injunction against the rS'spondents but after hearing the respondents, the
City Civil Court vacated the ad-interim injunction and dismissed the
notice of motion by a_n order dated 10th October, 1977.
An appeal
was preferred by K. S. Irani against this order, but the appeal was
dismissed by the High Court on 19th October, 1977. Immediately
thereafter, on the same day, the Ist respondent handed over possession of iwo
site~ 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 4t11 respondents were different from the sites occupied by A. S.
Jrani, because A. S. Irani refused to vacate the sites in his occupation.
So far as the site for the restaural)t was concerned, the Ist
respondent could not hand over the possession of it to the 4th respondents presumably because there was no other
appropriate
site
available other than the one occupied by A. S. Irani. Since A. s.
Irani refused to hand over possession of the sites occupied by him
to the 1st respondent, even though his contract had come to an end,
and continued to carry on the business of running the restaurant :md
the snack bars on these sites, the Ist respondent was constrained to
file suit No. 8032 of 1977 against A. S. Irani in the City Civil Court
at Bombay and in that suit, an injunction was obtairied by the 1st
respondent restraining A. S. Irani from running or conducting the
restaurant and the snack bars or from entering the premises save and
except for winding up the restaurant and the snack bars. A. S. Irani
preferred an appeal against the order granting the injunction, but the
appeal was rejected and ultimately a petition for special leave to
appeal to this Court was also, turned down on 31st July, 1978.
This was, however, not to be the end of the travails of the 4th
respondents, for, as soon as the appeal preferred by K. S. Irani against
the order dismissing his notice of motion was rejected by the High
Court on 19th October, 1977, A. S. Irani filed another suit being sait
No. 8161 of 1977 in the City Civil Court, Bombay on 24th October,
1977 seeking mandatory injunction for removal of the two snack bars
put up by the 4th respondents.
This was one more attempt by A. S.
Irani to prevent the 4th respondents from obtaining the benefit of the
contract awarded to them by the Ist respondent.
He, however, did
not succeed in obtaining ad-interim injunction and we are told that the
notice of motion taken out by him is still pending in the City Civil
Court.
It will thus be seen that A. S. Irani failed in his attempts to prevent the 4th respondents from obtaining the contract and enjoying its
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benefit. The 4th respondents put up two snack bars on the sites
provided by the !st respondent and started running the two snack
bars from 19th October, 1977.
'The restaurant howel<er, could not
be put up on account of the inability of the Ist respondent to pro-ride
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. 4,500/-
per month by mntual agreement between the parties. But it seems
that the 4th respondents were not destined to be left in peace to run
the two snack bars and soon after the dismissal of the appeal of A. S.
Irani on 19th October, 1977 and the failure of A. S. Irani to obtain
an ad-interim mandatory injunction in the suit filed by him against
the !st and the 4th respondents, the appeflant filr l writ petition No.
1582 of 1977 in the High Court of Bo~bay challenging the decision
of the Ist respondent to <tCcept the tender of the 4th respondents. The
writ petition was moved before a Single Judge of the High Court on
8th November, 1977 a_fter giving prior notice to the respondents and
after hearing the parties, the learned Single Judge sununarily rejected
the writ petition.
The appellant preferred an appeal to the Division
Bench of the High Court against the order rejecting the writ petition
and on notice being issued by the Division Bench, the Ist and the 4th
respondents filed their respective affidavits in reply showing cause
against the admission of the appeal.
The Division Bench after considering the affidavits and hearing the parties rejected the appeal in
limine on 21st February, 1978. The appellant thereupon
filed
a
petition for special leave to appeal to this Court and since it was felt
that the questions raised in the appeal were of seminal importance,
this Court granted special leave and decided to hear the appeal at an
early date after giving a further opportunity to the parties to file their
respective affidavits. That is how the appeal has now come before
us for fmal hearing with full and adequate material placed before us on
behalf of both the parties.
The main contention urged on behalf of the appellant was that
in par..graph (1) of the notice inviting tenders the !st respondoot
had stipulated a condition of eligibility by providing that a pecson
submitting a tender must be a "registered Und class Hotelier having
at least 5 years experience."
This was a condition of eligibility to
be satisfied by every person submitting a tender and if in case of iiny
person, this condition was not satisfied. his tender was ineligible for
being considered.
The 1st respondent, being a State within the
meaning of Art. 12 of the Constitution or in any event a public
authority, was bound to give effect to the condition of eligibility set
up by it and was not entitled to depart from it at its own sweet will
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R. D. SHETTY v. AIRPORT AUTHORITY (Bhagwati, J.)
1025
without rational justification.
The 4th respondents had experience
of catering only in canteens and did not have 5 years' experience of
running a Ilnd class hotel or restaurant and hence they did not satisfy
the condition of eligibility and yet the 1st respondent accepted the
tender submitted by them. This was clearly in violation .of lhe standard or norm of eligibility set up by the 1st respondent and the action of
the 1st respondent in accepting the tender of the 4th respondents was
clearly invalid. Such a departure from the standard or norm of eligibility had the effect of denying equal opportunity to the appellant and
others of submitting their tenders and being considered for entering
into contract for putting up and running the restaurant and
two
·suack bars.
The appellant too was not a
registered
2nd
class
hotelier with 5 years' experience and was in the same position as
the 4th respondents vis-a-vis this condition of eligibility and he also
could have submitted his tender and entered the field of consideration
for award of the contract, but he did not do so because of this
condition of eligibility which he admittedly did
not satisfy.
The
action of the 1st respondent in accepting the tender of the 4th respondents had, therefore, the effect of denying him equality of opportunity in the matter of consideration for award of the contract and
hence it was unconstitutional as being in violation of the equality
clause. This contention of the appellant was sought to be met by a
threefold argument on behalf of the 1st and the 4th Respondents.
The first head of the argument was that grading is given by the
Bombay City Municipal Corporation only to hotels or restaurants
and not persons running them and hence there can be a 2nd grade
hotel or restaurant but not a 2nd grade hotelier and the requirement
in paragraph (l) of the notice that a tenderer must be a registered
2nd grade hotelier was therefore a meaningless requirement and it
conld not be regarded as laying down any condition of eligibility.
It was also urged that in any event what paragraph ( 1) of the notice
required was not that a person tendering must have 5 years' experience of running a 2nd grade hotel, bnt he should have sufficient
experience to be able to run a 2nd grade hotel and the 4th respondents were fully qualified in this respect since they had over 10 years'
·experience in catering to canteens of well known companies, clubs
and banks.
It was further contended in the alternative that paragraph (8) of the notice clearly provided that the acceptance of the
·tend,er would rest with the Airport Director who did not bind himself to accept any tender and reserved to himself the right to reject
all or any of the tenders without assigning any reasons therefor and
it was, therefore, competent to the 1st respondent to reject all the
tenders and to negotiate with any person it considered fit to enter
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into a contract and this is in effect and substance what
the
1st
respondent did when he accepted the tender of the 4th respondents.
The second head of argument was that paragraph (I) of the notice
setting out the condition of eligibility had no statutory force nor was
it issued under any administrative rules and, therefore, even if there
was any departure from the standard or norm of eligibility set out
in th,at paragraph, it was not justiciable and did not furnish any cause
of action to the appellant. It was competent to the 1st respondent to
give the contract to any one it thought fit and it was not bound by
the standard or norm of eligibility set out in paragraph (1) of the
notice. It was submitted that in any event the appellant had
no
right to complain that the' !st respondent had given the contract to
the 4th respondents in breach of the condition of eligibility laid
down in paragraph (I) of the notice.
And lastly, under the third
head of argument, it was submitted on behalf of the !st 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 Court, since the appellant had no real interest but was merely
a nominee of A. S.