# ( STERLING COMPUTERS LIMITED ETC v. M & N PUBLICATIONS LIMITED AND ORS - **Citation:** [1993] 1 S.C.R. 81 - **Court:** Supreme Court of India - **Decided:** 1993-01-12 - **Case number:** Writ Petition and appellant in one of the appeals (C.A.No. 91 of 1993 - **Bench:** N.M. Kasliwal, N.P. Singh - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sterling-computers-limited-etc-v-m-n-publications-limited-and-ors-11724 - **Pages:** 26 ## Headnote B Constitution of India : Articles 12, 14, 19, 32, 136, 226 and 298. Government contracts-:Tudiciai review-Court primarily concerned with infirmity in decision making process-Urgency of disposal by courts of c such matters-Necessity for. Telephone directorie..-Publication of-Contract termed 'supplementa! ~ -< contract' grantetf--Held amounted to grant of fresh contract in garlJ of 'supplemental contract'. D The three appeals arose out of disputes relating to the publication of telephone directories of MTNL a Government of India Undertaking. The MTNL introduced a new concept of "yellow pages" in telephone directories, and these yellow pages were to contain advertisement under dif- .+- ferent beadings. The contractor who was to be awarded the contract for E printing such directories was to collect the revenue from the advertisements in the yellow pages as well as in the white pages of the telephone directory, supply the same free of cost to the MTNL for its subscribers, and pay royalty to the MTNL in connection with printing or such directories. F --- .....; Tenders for publication of the directories for Delhi and Bombay were invited. Tender of UIP - respondent No. 2 in the Writ Petition and appellant in one of the appeals (C.A.No. 91 of 1993) was accepted, and an agreement dated 14th March, 1987 was executed. UDI, respondent No. 3 to the Writ Petition and appellant in one of the other appeals (CA No. 90. G of 1993) was a subsidiary of UIP. " Under the original agreement UIP was to pnblish directories every I year for a period of five years from 1987 to 1991 for Delhi and Bombay separately, pay an amoont of Rs. 20.16 crores as royalty to the MTNL, supply the directories free of cost to subscribers. UIP also furnished a H 81 82 SUPREME COURT REPORTS [ 1993] 1 S.C.R. A performance guarantee for a sum of Rs. one crore, and was also to supply the same ·number of supplementary directories which were to be published six months after the publication of the annual issue, to be published in November/December every year. UIP was given the exclusive right for procurement of the advertisements in the yellow pages as well as strips, B bold the extra entries in the white pages, the rates to 'be fixed by the UIP for each issue of the directory, and such rates to be printed for general information. It was stipulated that ir UIP committed default or breach of the agreement or failed in the due performance thereof, the MTNL shall be entitled to recover from the UIP by way of compensation or liquidated damages and amount calculated at the rate of Rs. One lakb for every day C or part thereof for the delay beyond the stipulated date. The MTNL without pttjudice to other rights could by notice in writing determine the contract. UIP defaulted and committed breach of the agreement inasmuch as D directories for Delhi were published only for the years 1987 and 1988 and for Bombay only for the year 1987. For the year 1987, Delhi issue was published after a delay of seven months and Bombay issue afte~ six months, and the Delhi Issue of 1988 was published only in August, 1990, a delay of two years. There was no publication of the directories for Delhi for the years 1989, 1990 and 1991, and in respect of Bombay for the years E 1988, 1989, 1990 and 1991. A supplem~ntal agreement was entered on 26th September, 1991 between UIP, UDI, MTNL and Sterling Computers Limited ·appellant in one of the appeals (C.A. No. 89 of 1993). Sterling by this agreement was F introduced to carry out the unexecuted po.rtion of the agreement with UIP. G By this supplemental agreement Sterling was to print and publish 13 main issues of Delhi and Bombay directories within a period of seven years includiug the year 1991 on payment of additioual royalty of only Rs. 10 crores to the. MTNL over and above the royalty stipulated in the original agreement by the UIP. Under the agreement dated 14th March, 1987 the royalty which was payable was Rs. 20.16 crores for the period 1987 to 1991, but ## Text _Characters 0–39,590 of 62,500. This is a partial read: ask again with offset=39590 for what follows._ -( STERLING COMPUTERS LIMITED ETC. A l v. M & N PUBLICATIONS LIMITED AND ORS. JANUARY 12, 1993 [N.M. KASLIWAL AND N.P. SINGH, JJ.) B Constitution of India : Articles 12, 14, 19, 32, 136, 226 and 298. Government contracts-:Tudiciai review-Court primarily concerned with infirmity in decision making process-Urgency of disposal by courts of c such matters-Necessity for. Telephone directorie..-Publication of-Contract termed 'supplementa! ~ -< contract' grantetf--Held amounted to grant of fresh contract in garlJ of 'supplemental contract'. D The three appeals arose out of disputes relating to the publication of telephone directories of MTNL a Government of India Undertaking. The MTNL introduced a new concept of "yellow pages" in telephone directories, and these yellow pages were to contain advertisement under dif- .+- ferent beadings. The contractor who was to be awarded the contract for E printing such directories was to collect the revenue from the advertisements in the yellow pages as well as in the white pages of the telephone directory, supply the same free of cost to the MTNL for its subscribers, and pay royalty to the MTNL in connection with printing or such directories. F --- .....; Tenders for publication of the directories for Delhi and Bombay were invited. Tender of UIP - respondent No. 2 in the Writ Petition and appellant in one of the appeals (C.A.No. 91 of 1993) was accepted, and an agreement dated 14th March, 1987 was executed. UDI, respondent No. 3 to the Writ Petition and appellant in one of the other appeals (CA No. 90. G of 1993) was a subsidiary of UIP. " Under the original agreement UIP was to pnblish directories every I year for a period of five years from 1987 to 1991 for Delhi and Bombay separately, pay an amoont of Rs. 20.16 crores as royalty to the MTNL, supply the directories free of cost to subscribers. UIP also furnished a H 81 82 SUPREME COURT REPORTS [ 1993] 1 S.C.R. A performance guarantee for a sum of Rs. one crore, and was also to supply the same ·number of supplementary directories which were to be published six months after the publication of the annual issue, to be published in November/December every year. UIP was given the exclusive right for procurement of the advertisements in the yellow pages as well as strips, B bold the extra entries in the white pages, the rates to 'be fixed by the UIP for each issue of the directory, and such rates to be printed for general information. It was stipulated that ir UIP committed default or breach of the agreement or failed in the due performance thereof, the MTNL shall be entitled to recover from the UIP by way of compensation or liquidated damages and amount calculated at the rate of Rs. One lakb for every day C or part thereof for the delay beyond the stipulated date. The MTNL without pttjudice to other rights could by notice in writing determine the contract. UIP defaulted and committed breach of the agreement inasmuch as D directories for Delhi were published only for the years 1987 and 1988 and for Bombay only for the year 1987. For the year 1987, Delhi issue was published after a delay of seven months and Bombay issue afte~ six months, and the Delhi Issue of 1988 was published only in August, 1990, a delay of two years. There was no publication of the directories for Delhi for the years 1989, 1990 and 1991, and in respect of Bombay for the years E 1988, 1989, 1990 and 1991. A supplem~ntal agreement was entered on 26th September, 1991 between UIP, UDI, MTNL and Sterling Computers Limited ·appellant in one of the appeals (C.A. No. 89 of 1993). Sterling by this agreement was F introduced to carry out the unexecuted po.rtion of the agreement with UIP. G By this supplemental agreement Sterling was to print and publish 13 main issues of Delhi and Bombay directories within a period of seven years includiug the year 1991 on payment of additioual royalty of only Rs. 10 crores to the. MTNL over and above the royalty stipulated in the original agreement by the UIP. Under the agreement dated 14th March, 1987 the royalty which was payable was Rs. 20.16 crores for the period 1987 to 1991, but under the supplemental agreement Sterling was given the contract to publish 13 main issues of the Delhi and Bombay directories upto 1997 and 1998, bnt H for the extended period it had to pay royalty only for an amount of Rs. 10 - STERLING COMPUTERS v. M & N PUBLICATIONS 83 crores. A Writ Petition was filed questioning the validity and legality of the supplemental agreement on different .grounds including the ground of ma/a fide. It was contended by the petitioners that under the garb of a supplemental agreement a fresh contract was awarded to Sterling for a fresh period from 1991 to 1997 on fresh terms and conditions to publish the directories every year for Delhi and Bombay without inviting tenders or affording an opportunity to others, to submit tenders so that they may A B be also considered for award of the said contract. It was asserted by the petitioners that In the process of entering into the supplemental agreement the MTNL, which is a public undertakigg and a 'State' within the C meaning of Article 12 of the constitution, had suffered a loss of more than Rs. 60 crores without any corresponding benefit accruing to the MTNL or to the public in general. MTNL contested the writ petition, contending that the supplemental agreement was a result of a bona fide commercial decision free from any D bias or malice, that the original contract for the years 1987 to 1991 had been awarded to UIP after inviting tenders, but UIP having gone bankrupt, no money could have been realised from it. The termination of the ortgioal contract was no remedy although repeated contraventions and breaches had been committed by the UIP inasmuch as there was no E publication of directory for Bombay for the years 1988, 1989, 1990 and 1991 and for Delhi for the years 1989, 1990 and 1991. Io order to salvage Rs. 20.16 crores which was payable to the MTNL under the original agreement dated 14th March, 1987 by the UIP and which had not been paid, a decision was taken by the MTNL to enter into a supplemental agreement and to allow the UIP/UNI/Sterling to publish the thirteen F issues of directories, six main issues for Delhi and seven main issues for Bombay upto years 1997-98 apart from the supplementary directories. The High Court allowed the Writ petitions, and came to the conclusion that the .. supplemeotal agreement dated 26th September, 1991 G 'cannot be held tO be an extension of the original agreement dated 14th March, 1987, and that the supplemental agreement was tainted with malice - the object being to provide on-just enrichment to UIP/UDI/Sterling. In the' appeals to this Court, it was contended on behalf of the H 84 SUPREME COURT REPORTS (1993] 1 S.C.R. A appellants that the supplemental agreement was entered into by the MTNL taking into consideration the circumstances then existing which )- bad been examined at the highest level and as such a Court should not examine the discretion exercised by the public authority as a court or appeal because the decision to enter into the supplemental agreement also B involved a question or policy, and it was pointed out that the contract had been awarded in the year 1987 to UIP on an experimental basis on such terms and conditions on which in past directories had not ever been published, and that the real experiment was as to how the directories could be published without incurring any cost by MTNL. C On behalf or the Writ Petitioners it was stated that they were prepared D to pay to the MTNL an amount of Rs. 60 crores for the period 1991 to 1997/1998 the pedod covered by the supplemental agreement for which the UIP/UDl/Sterling have undertaken to pay only Rs.10 crores as royalty. Dismissing the appeals, this court HELD: 1. The publication or directories by the MTNL is not just a commercial venture, the primary object is to provide service to the people. [92F) 2. The norms and procedures prescribed by Government ancl indl· E cated by Courts have to be more strictly followed while awarding contracts which have along with a commercial element a public purpose. [92F) 3. The action or the procedure adopted by the authorities which can be held to be a 'State' within the meaning or Article 12 or the Constitution, ' while awarding contracts in respect of properties belonging to the state F can be judged and tested in the light or Article 14 or the Constit'!tion. Raman Davaram Shetty v. The International Airport Authority of India, AIR 1979 SC 1628; Mis. Kasturi Lal Lakshmi Reddy v. The State of Jammu and Kashmir, AIR 1980 SC 1992; Fertilizer Corporation Kamgar Union G ( Regd.) Sin irrelevant ones. If such decision is influenced by extraneous considerations which it ought not to have been taken into account the ultimate decision is bound to be vitiated, even if it is established that such decision F had been taken without bias. [1028, 103A] 8. While exercising the power of judicial review, in respect of con· tracts entered into on behalf of the State, the Court is concerned prima:·ily as to whether there bas been any infirmity in the "decision making process". By way of judicial review the Court cannot examine the details of G the terms of the contract which have been entered into by the public bodies or the state. Courts have inherent limitations on the scope of any such enquiry. But the Courts can certainly exami11e whether 'decision maki11g process' was reasonable, rational, not arbitrary and violative of Article 14 of the Con~titution. [95C-E-F] H A B c D E 86 SUPREME COURT REPORTS (1993] l S.C.R. Chief Constable of the North Wales Police v. Evans, [1982) 3 All ER 141, referred to. 9. In the facts and the circumstances of the instant case, it has to be held that the MTNL has applied the "irrelevant considerations" doctrine wbile granting a fresh contract for a period of live years through the supplemental agreement dated 26th September, 1991, because it had failed to take into account considerations which were necessarily relevant i.e. following the rule of inviting tenders while granting the contract for a further period of live years on fresh terms and conditions and had taken into account irrelevant considerations. [lOlH, 102A) 10. Philanthropy is no part or the management of an undertaking, while dealing with a contractor entrusted with the execution of a contract. · [102F] 11. The supply of the directories to pnblic in time, was a public service which was being affected by the liberal attitude or the MTNL and due to the condonation of delay on the part of the UIP/UDI. There was no justification on the part of the MTNL to become benevolent by entering into the supplemental agreement with no apparent benefit to the MTNL, without inviting fresh t•nders from intending persons to perform the some job for the next live years. [102G] 12. The supplemental agreement is really a fresh agreement with fresh terms and conditions ';"hich has been entered by MTNL without inviting any tender for the same. It has been entered to benefit the parties who are admittedly defaulters by not publishing directories for Bombay F for the years 1988-1991, and for Delhi for the years 1989-1991 although they had collected several crores or Rupees for the advertisem•nts for the directories to be published in the aforesaid years. [103D·El 13. It is a matter of common experience that whenever applications relating to awarding of contracts are entertained for judicial review of the G administrative action, such applications remain pending for months and · in some cases for years. Because of the interim orders passed in such applications, the very execution of the contracts, are kept in abeyance. The cost of different projects keep on escalating with passage of time apart from the fact that the completion of the project itself Is deferred. This H process not only affects the public exchequer but even the public in general •' -~ r-- "" ~- STERLING COMPUTERS v. M & N PUBLICATIONS [N.P. SINGH, J.] 87 --( who are deprived of availing the facilities under different projects. As A ' such, it need not be impressed that while exercising the power of judicial review in connection with contractual obligations, Courts should be con· scions or the urgency of the disposal of such matters, otherwise the power which is to be exercised in the interest of the public and for public good in some cases become counter- productive by causing injury to the public B in general. [106A,B] CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 89-91 of 1993. From the Judgment and Order dated 30.9.1992 of the Delhi High c Court in W.P. No. 1872 of 1992. · K. Parsaran, Kapil Sibal, L.P. Agarwalla, N.P. Agarwalla, Ani1 Agarwalla, Gopal Subramaoium, Fazal-ul-Quaidir, P.H. Parekh, Ms. Nina - ·...: Gupta and Vfueet Kumar for the Appellant. D K.K. Venugopal, P. Chidambaram, Ani1 P. Diwan, Harish N. Salve, Vijay Narain, P.P. Tripathi and P.P. Singh for the Respondents. R.N. Keshwani for the Intervenor. The following Judgment of the Court was delivered by E N.P. SINGH. J. Leave granted. .--- Three appeals have been filed against the same judgment of the High Court by which the Writ Petition filed on behalf of the petitioners/respondents (hereinafter referred to as "the writ-petitioners") was allowed. The F \ dispute relates to the publication of the telephone directories of Mahanagar Telephone Nigam Limited, a Government of India Undertaking (hereinafter referred to as "the MTNL"). A new concept of yellow pages in the telephone directories was G introduced by the MTNL/Department of Telecommunications. The yellow pages were to contain advertisements under different headings. The con- \ tractor who was to be awarded the contract for printing such directories was to collect the revenue from the advertisements in the yellow pages as well as in white pages of the telephone directory. The contractor was to print the directories and supply the same free of cost to the MTNL for its H 88 SUPREME COURT REPORTS (1993) 1 S.C.R. A subscribers and had to pay royalty to .the MTNL in connection witl printing of such directories. B Tenders for publication of the directories for Delhi and Bombay were invited. Tender of the United India Periodicals Pvt. Ltd. (hereinafter referred to as 'the lJIP", the 2nd respondent to the Writ Petition and appellant in one of the appeals) was accepted and an agreement dated 14th March, 1987 was executed. United Database (India) Pvt. Ltd. (hereinafter referred to as "the UDI", the 3rd respondent to the Writ Petition ant! appellant in one of the appeals) is a subsidiary of UIP. Under the original agreement UIP was to publish directories every year for a period of five C years from 1987 to 1991 for Delhi and Bombay separately and was to pay an amount of Rs. 20.16 crores as royalty to the MTNL and to supply the MTNL directories free of cost with reference to the number of subscribers. UIP also furnished a performance guarantee for a sum of Rs. one crore. UIP was also to supply the same number of supplementary directories D which were to be published six months after the publication of the annual issue. The annual issue of the directory was to be published in November/December every year. UIP was given the exclusive right for procurement of the advertisementf in the yellow pages as well as strips, bold and extra entries in the white pages. The rates of such advertisements were to E be fixed by the UIP for each issue of the directory and such rates had to be printed for general information. It was also stipulated that if UIP committed any default or breach of the terms and conditions of the agreement or failed in the due performance thereof within the time fixed (which was the essence of the contract), the MTNL shall be entitled to F recover from the UIP by way of compensation or liquidated damages an amount calculated at the rate of Rs. one lakh for every day or part thereof for the delay beyond the stipulated date in respect of the item which was not completed or finished and delivered completely to the MTNL on the stipulated date as mentioned in the contract. In view of clause 22 of the agreement, the MTNL without prejudice to other rights could by notice in G writing determine the contract. It is an admitted position that UIP defaulted and committed breach of the terms of the agreement inasmuch as directories for Delhi were published only for the years 1987 and 1988 and for Bombay only for the H year 1987. For the year 1987, Delhi issue was published after a delay of ~- - - --..: -, STERLING COMPUTERS v. M & N PUBLICATIONS [N.P. SINGH, J.] 89 seven months and that of Bombay after six months. So far Delhi issue of A the directory for the year 1988 is concerned, it was published only in August, 1990 after a delay of two years. Under the agreement UIP was to publish directories every year for Delhi and Bombay separately during the period of contract from 1987 to 1991. They were also required to publish supplementary directory each year for Delhi as well as Bombay. But there B was no publication of directories for Delhi for the years 1989, 1990 and 1991. Similarly there was no publication of directories in respect of Bombay for the years 1988, 1989, 1990 and 1991. On 26th September, 1991 " >upplemental agreement was entered between UIP, UDI, MTNL and Sterling Computers Ltd. (hereinafter referred to as "Sterling", appellant in one of the appeals). Sterling by this agreement was introduced to carry out the unexecuted portion of the agreement with UIP. It may be mentioned that by this date the period of the original agreement dated 14th March, 1987 between the MTNL and c the UIP had expired, still the supplemental agreement states that "subject D to UIP/UDI and Sterling successfully completing the unexecuted job relating to printing of Bombay and Delhi telephone directories within the stipulated time frame and other stipulations in the agreement MTNL shall extend the original contract for three more issues each for Delhi and Bombay, i.e., seven main issues of Bombay and six main issues of Delhi of the said directories to be brought out hereafter". The agreement further stipulated that all terms and conditions contained in the original agreement E F and the memorandum of understanding would be the integral part of the supplemental agreement and all obligations of UIP/UDI and rights and privileges and powers provided for MTNL thereunder and uncler the law shall be applicable and available to and binding on the parties to the supplemental agreement as if the same were the part of the supplemental agreement. It was also said that if there was any inconsistency or contradictions vis-a-vis the original agreement, the memorandum of understanding read with supplemental agreement shall prevail and would have overriding effect. By the supplemental agreement Sterling was to print and publish 13 main issues of Delhi and Bombay directories within a period of seven years G including the year 1991 on payment of additional royalty of only Rs. 10 crores to the MTNL over and above the royalty stipulated in the original agreement by the UIP. As mentioned above the original royalty which was payable under the agreement dated 14th March, 1987 was Rs. 20.16 crores for the period 1987 to 1991 but under the supplemental agreement Sterling H 90 SUPREME COURT REPORTS (1993] 1 S.C.R. A was given the contract to publish 13 main issues of the Delhi and Bomvay directories. upto 1997 and 1998, but for the extended period it bad to pay royalty only for an amount of Rs. 10 crores. It was left to the UIP IUD! to receive all revenue earnings on account (cast and future) from the advertisements and MTNL was to be only informed about the prices as fJXed. B c The Writ Petition aforesaid was filed questioning the validity and legality of the supplemental agreement on different grounds including on ground of ma/a fide. According to the writ-petitioners under the garb of a supplemental agreement a fresh contract was awarded to Sterling for a fresh period from 1991 to 1997 on fresh terms and conditions to publish the directories every year for Delhi and Bombay without inviting tenders or affording an opportunity to others, to submit tenders so that they may be also considered for award of the said contract. It was asserted by the petitioners that in the process of entering into the supplemental agreement the MTNL, which is a public undertaking and a State within the meaning D of Article 12 of the Constitution, has suffered a loss of more than Rs. 60 crores without any corresponding benefit accruing to the MTNL or to the public in general. Before the High Court the stand of the MTNL was that the supplemental agreement was a result of a bona fide commercial decision free E from any bms or malice. The original contract for years 1987 to 1991 had been awarded to UIP after inviting tenders but UIP, having gone bankrupt, no money could have been realised from it. The termination of original contract was no remedy although repeated contraventions and breaches had been committed by the VIP inasmuch as there was no publication of p directory for Bombay for the years 1988, 1989, 1990 and 1991 and for Delhi for the years 1989, 1990 and 1991. It was stated on behalf of the MTNL before the High Court that in order to salvage Rs. 20.16 crores which was payable to the MTNL under the original agreement dated 14th March, 1987 by the UIP and which had not been paid, a decision was taken by the MTNL to enter into a supplemental agreement and to allow the G UIP/UDl/Sterling to publish the thirteen issues of directories, six main issues for Delhi and seven main issues for Bombay upto years 1997-98 apart from the supplementary directories. The High Court came to the conclusion that supplemental agreement H dated 26th September, 1991 cannot be held to be the extension of the - -· _,, \ STERLING COMPUTERS v. M & N PUBLICATIONS [N.P. SINGH, J.] 91 original agreement dated 14th March, 1987. According to the High Court A the supplemental agreement was tainted with malice - the object being to provide unjust enrichment to UIP/UDI/Sterling. The most interesting part of the controversy is that the MTNL having fully supported the supplemental _agreement before the High Court has filed an affidavit before this Court saying that "MTNL has decided to accept the High Court judgment in so far as that the procedure for the grant of contract dated 26.9.1991 to the petitioner Mis Sterling Computers Ltd. Was not in keeping with the requirement of Article 14 of the Constitution and is not filing any petition for Special Leave against the said judgment. However, as far as aspersions -are concerned, MTNL does not accept the same and the same are matters of investigation and enquiry by an independent Central Agency at present." It has been further stated that subsequent events have shown that the Sterling has collected Rs. 19.59 crores approximately for advertisements in yellow pages without delivering B c the goods. They have also encashed the letter of credit issued by the D 'MTNL' prematurely. This collection is apart from the collection of Rs. 14 crores against the yellow pages advertisements made by UDI and UIP during the years 1987-1991. It has been further stated that the Board of 'MTNL' had in fact even decided to terminate the contract for lapse in the performance of the obligations under the 26th september, 1991 agreement but as the High Court has quashed the said supplemental agreement no further step was considered necessary. Ultimately it has been said in the said affidavit that 'MTNL' has started the process for inviting fresh public tenders and for that purpose advertisement has already been issued. E Mr. Venugopal, appearing for the writ-petitioners before us, stated F on behalf of the writ-petitioners that they are prepared to pay to the 'MTNL' an amount of Rs. 60 crores for the period 1991 to 1997/1998 the period covered by the supplemental agreement for which the UIP/UDI/ Sterling have undertaken to pay only Rs. 10 crores as royalty. At times it is said that public authorities must have the same liberty G as they have in framing the policies, even while entering into contracts °'y because many contracts amount to implementation or projection of policies of the Government. But it cannot be overlooked that unlike policies, contracts are legally binding commitments and they commit the authority which may be held to be a State within the meaning of Article 12 of the H 92 SUPREME COURT REPORTS [1993] 1 S.C.R. A Constituion in many cases for years. That is why the Courts have impressed that even in contractual matters the public authority should not have unfettered discretion. In contracts having commercial element, some more discretion has to be conceded to the authorities so that they may enter into contracts with persons, keeping an eye on the augmentation of the revenue. B c But even in such matters they have to . follow the norms recognised by Courts while dealing with public property. It is not possible for Courts to question and adjudicate every decision taken by an authority, because many of the Government Undertakings which in due course have acquired the monopolist position in matters of sale and purchase of products and with so many ventures in hand, they can come out with a plea that it is not always possible to act like a quasi judicial authority while awarding contracts. Under some special circumstances a discretion has to be conceded to the authorities who have to enter into contract giving them liberty to assess the overall situation for purpose of taking a decision as to whom the contract be awarded and at what terms. If the decisions have been taken in bona D fide manner although not strictly following the norms laid down by the courts, such decisions are upheld on the principle laid down by justice Holmes, that Courts while judging the constitutional validity of executive decisions must grant certain measure of freedom of "play in the joints" to the executive. E F G But in normal course some rules must exist to regulate the selection of persons for awarding contracts. In such matters always a defence cannot be entertained that contract has been awarded without observing the well settled norms and rules prescribed, on basis of the doctrine of "executive neces.ity". The norms and procedures prescribed by Government and indicated by Courts have to be more strictly followed while awarding contracts which have along with a commercial element a public purpose as in the present case. The publication of directories by the MTNL is not just a commerical venture; the primary object is to provide service to the people. The action or the procedure adopted by the authorities which can be held to be State within the meaning of Article 12 of the Constitution, while awarding contracts in respect of properties belonging to the State can be judged and tested in the light of Article 14 of the Constitution, is settled by the judgments of this court in the cases of Raman Dayaram Shetty v. H The lntemational Aitport Authority of India, AIR 1979 SC 1628; Mis. Kasturi - - --.; \ STERLING COMPUTERS v. M & N PUBLICATIONS [N.P. SINGH, J.] 93 Lat Lakshmi "Reddy v. The State of Jammu & kashmir, AIR 1980 SC 1992; A Fertilizer CorpOTtion Kamagar Union (Regd.) Sintlri v. Union of India, AIR 1981 SC 344; Ram and Shyam Company v. State of Haryana, AIR 1985 SC 1147; Haji T.M. Hasan Rawther v. Kera/a Financial Corporation, AIR 1988 SC 157; Mahabir Auto Stores v. Indian Oil Corporation, AIR 1990 SC 1031 and Kumari Shrilekha Vidyanhi v. State of U.P., AIR 1991 SC 537. It has been said by this Court :- "It must follow as a necessary corollary from this proposition B that the Government cannot act in a manner which would benefit a private party at the cost of the State: such an action would be both unreasonable and contrary to public interst. The C Government, therefore, cannot for example give a contract or sell or lease out its property for a consideration less than the highest that can be obtained for it, unless of course there are other considerations which render it reasonable and in public interest to do so." [M/s. Kasturi Lal Lakshmi Reddy v. The State of Jammu & Kashmir.) There is nothing paradoxical in imposing legal limits on such authorities by Courts even in contractual matters because the whole conception of unfettered discretion is inappropriate to a public authority, who is expected to exercise such powers only for public good. D E According to the appellants, the supplemental agreement was entered into by the MTNL taking into consideration the circumstances then existing which had been examined at the highest level and as such a F Court should not examine the discretion exercised by the public authority - \ as a court of appeal because the decision to enter into supplemental agreement also involved a question of policy. It was pointed out that the contract had been awarded in the year 1987 to UIP on an experimental basis on such terms and conditions on which in past directories had not ever been published. The real experime'1t was as to how the directories G could be published without incurring any cost by the MTNL. The publisher being given the right. not only to reimburse itself from the advertisements published in the yellow and white pages but" was also to pay royalty to the MTNL. It was further pointed out that from the resolutions of the MTNL. It shall appear that the authorities' were concerned that the experiment H 94 SUPREME COURT REPORTS [1993) 1 S.C.R. A aforesaid must succeed. With that object in view, another opportunity was given to UIP/UDI/Sterling through the supplemental agreement to publish the directories for Delhi and Bombay. That decision should not be examined by this Court like a court of appeal. It is true that by way of judicial review the Court is not expected to B act as a court of appeal while examining an administrative decision and to record a finding whether such decision could have been taken otherwise in the facts and circumstances of the case. In the book Administrative Law, Prof. Wade has said :- c D E F G H "The doctrine that powers must be exercised reasonably has to be reconciled with the no less important doctrine that the court must not usurp the discretion of the public authority which parliament appointed to take the decision. Within the bounds of legal reasonableness is the area in which the deciding authority has genuinely free discretion. If it passes those bounds, it acts ultra vires. The court must therefore resist the temptation to draw the bounds too tightly, merely according to its own opinion. It must strive to apply an objective standard which leaves to the deciding authority the full range of choices which legislature is presumed to have intended. The decisions which are extravagant or capricious cannot be legitimate. But if the decision is within the confines of reasonableness, it is no part of the court's function to look further into its merits. With the question whether a particular policy is wise or foolish the court is not concerned; it can only interfere if to pursue it is beyond the powers of the authority.' But in the same book Prof. Wade has also said:- "The powers of public authorities are therefore essentially different from those of private persons. A man making his will may, subject to any rights of the dependants, dispose of his property just as he may wish. He may act out of malice or a spirit of revenge, but in law this does not affect his exercise of his power. Jn the same way a private person has an absolute power to allow whom he likes to use his land, to release a debtor, or, where the law permits, to evict a tenant, regardless of his motives. This is unfettered discretion. But a public STERLING COMPUTERS v. M & N PUBLICATIONS [N.P. SINGH, J.] 95 authority may do none of these things unless it acts reasonably A I and in good faith and upon lawful and relevant grounds of public interest. There are many cases in which a public authority has been held to have acted from improper motives or upon irrelevant conB siderations, or to have failed to take account of relevant considerations, so that its action is ultra vires and void." While exercising the power of judicial review, in respect of contracts entered into on behalf of the State,· the Court is concerned primarily as to whether there has been any infirmity in the 'decision making process". In c this connection reference may be made to the case of Chief Constable of the North Wales Police v, Evans, (1982) 3 All ER 141, where it was said that 'The purpose of judicial review" - - '--<. ' ... is to ensure that the individual receives fair treatment, and not to ensure that the authority, after according fair treatment, D reaches on a matter which it is authorised or enjoined by law to decide for itself a conclusion which is correct in the eyes of the court.' By way of judicial review the court cannot examine the details of the terms E -,i.. of the contract which have been entered into by the public bodies or the state. Courts have inherent limitations on the scope of any such enquiry. But at the same time as was said by the House of Lords in the aforesaid case, Chief Constable of the North Wales Police v. Evans (supra), the Courts can certainly examine whether 'decision making process' was reasonable, rational, not arbitrary and violative of Article 14 of the Coruititution. F ~_,. If the contract has been entered into; without ignoring the procedure which can be said to be basic in nature and after an objective consideration . of different options available taking into account the interest of the State and the public, then Court cannot act as an appellate authority by substitut- G ing its opinion in respect of selection made for entering into such contract. But, once the procedure adopted by an authority for purpose of entering into a contract is held to be against the mandate of Article 14 of the ~.- Constitutfon, the Courts cannot ignore such action saying that the authorities concerned must have some latitude or liberty in contractual matters and any interference by court amounts to encroachment on the H 96 SUPREME COURT REPORTS [1993] 1 S.C.R. A exclusive right of the executive to take such decision. In support of the stand that it was open to the MTNL to negotiate with the UIP/UDI/Sterling for purpose of publication of the directories for Delhi and Bombay without inviting tenders, reliance was placed on behalf B of the appellants on the judgments of this Court in the cases of Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, (1980] 3 SCR 1338; State of Madhya Pradesh v. Nandlal Jaiswal, (1987] 1 SCR; Sachidanand Pandey v. State of West Bengal, (1987] 2 SCC 295 and G.B. Mahajan v. Jalgaon Municipal Council, (1991] 3 SCC 91. c From the facts of the case of Kasturi Lal Lakshmi Reddy (Supra) it shall appear that every year the State used to auction the blazes in different forests. Most of the contractors bidding at the auction had their factories outside Jammu & Kashmir. A decision was ta~en that from the year 1979-80 onwards resin extracted from its forests should not be allowed to D be exported outside the territories of the State and should be utilised only by industries set up within the State. There were certain forests which were out of access on account of their distance from the roads and no contractor could be fonnd for taking tapping contracts even on the basis of royalty. The Chief Conservator of Forests and other Forest Officers at a meeting E F took a decision which was also confirmed at a subsequent meeting, between the Forest Minister, the Forest Secretary and the Chief Conservator of Forests, that the blazes for such inaccessible areas should be allotted to some private party. In view of that decision the second respondent who had earlier addressed a letter to the State Government offering to set up a factory for manufacture of resin turpentine oil and other derivatives in the State and had sought for allotment of 10,000 metric tonnes of resin annually was sanctioned the allotment of 11.85 lacs blazes in the inaccessible areas for a period of 10 years on the terms and conditions set out in the order. This was challenged in the aforesaid case. This Court said that whatever be its activity, the Government is still the Government and is, G subject to restraints inherent in its position and as such every activity of the Government which has a public element in it must be resonable and not arbitrary. However, the allotment of the contract in favour of the second respondent was upheld. It was pointed out that the blazes were situated in inaccessible areas and in spite of the offers given no bidders were attracted and as such the State had no option but to allot the said H contract on basis of the offer made by the second respondent. >- . -~, STERLING COMPUTERS v. M & N PUBLICATIONS [N.P. SINGH, J.] 97 The case of State of Madhya Pradesh Ii. Nandla/ Jaiswal (supra) A related to grant of liquor licences. The procedure adopted for such grant were being challenged as being violative of Article 14 of the Constitution. It was said by this Court:• 'But, while considering the applicability of Article 14 in such a case, we must bear in mind that, having regard to the nature of the trade or business, the Court would be slow to interfere with the policy laid down by the State Government for grant of licences for manufacture and sale of liquor.