Distribution of State Largesse in India

The Jurisprudence of State Largesse Distribution in India: Principles of Fairness, Non-Arbitrariness, and Public Interest

Introduction

The concept of "State largesse" encompasses the diverse array of resources, benefits, licenses, contracts, quotas, and privileges that the State and its instrumentalities distribute. In a welfare state with expanding governmental functions, the manner of this distribution is of profound significance, impacting individual rights, economic opportunities, and the overall public interest. The Indian judiciary has, over several decades, developed a robust jurisprudence to govern the exercise of State power in dispensing largesse, primarily anchored in the constitutional mandate of equality and non-arbitrariness. This article seeks to analyze the key legal principles governing the distribution of State largesse in India, drawing extensively from landmark judicial pronouncements and constitutional provisions. It will explore the requirements for policy formulation, the standards applicable to contractual matters and tenders, the special considerations for natural resources, the scope of judicial review, and the imperative of accountability.

The Constitutional Cornerstone: Article 14 and the Prohibition of Arbitrariness

The bedrock of the legal framework governing State largesse is Article 14 of the Constitution of India, which guarantees equality before the law and the equal protection of the laws. The Supreme Court has consistently interpreted Article 14 to embody a prohibition against arbitrariness in State action. Any action that is arbitrary, irrational, or unreasonable is inherently unequal and thus violative of Article 14.

In Kumari Shrilekha Vidyarthi And Others v. State Of U.P And Others (1991 SCC 1 212), the Supreme Court emphasized that the applicability of Article 14 to State actions, even in contractual matters, is essential to prevent arbitrariness and uphold the rule of law. The Court asserted that State actions must not be based on whims or arbitrary considerations. This principle was reiterated in Sterling Computers Limited v. M/S M & N Publications Limited And Others (1993 SCC 1 445), where the Court invalidated a supplemental agreement entered into without inviting fresh tenders, deeming it a violation of Article 14 due to the denial of equal opportunity to other potential bidders.

The Supreme Court in Ramana Dayaram Shetty v. International Airport Authority Of India And Others (1979 SCC 3 489) firmly established that an instrumentality of the State is bound by constitutional mandates, particularly Article 14, and cannot act arbitrarily in its dealings. The Court held that accepting a tender that did not meet stipulated eligibility criteria constituted arbitrary action. The underlying philosophy is that the "Government is not and should not be as free as an individual in selecting recipients for its largesses. Whatever its activities, the Government is still the Government and will be subject to the restraints inherent in its position in a democratic society. A democratic Government cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it will deal," as astutely observed by Mathew, J. in B. Punanan Thomas v. State of Kerala (AIR 1969 Kerala 81 (FB)), a sentiment echoed in Anil Sabbarwal v. The State Of Haryana & Others (Punjab & Haryana High Court, 1997).

Furthermore, as articulated in GOVERNMENT OF TELANGANA v. RAO V.B.J.CHELIKANI (Supreme Court Of India, 2024), citing Erusian Equipment and Chemicals Ltd. v. State of West Bengal, the Government, unlike a private individual, cannot pick and choose arbitrarily. "When the Government is trading with the public, the democratic nature of Government demands equality coupled with an absence of arbitrariness and discrimination in such transactions. The activities of the Government have a public element and, therefore, they should be conducted with fairness and equality."

The Imperative of a Transparent and Well-Defined Policy

A cornerstone of non-arbitrary distribution of State largesse is the existence of a sound, transparent, discernible, and well-defined policy. This policy must be made known to the public and implemented in a non-discriminatory manner. The Supreme Court, in Akhil Bhartiya Upbhokta Congress v. State of Madhya Pradesh and Others, as reiterated in CITY MONTESSORI SCHOOL v. STATE OF U.P. (Supreme Court Of India, 2024) and Shakti Commercial Premises Society Ltd. v. State Of Maharashtra And Others (Bombay High Court, 2012), laid down this principle emphatically:

"Every action/decision of the State and/or its agencies/instrumentalities to give largesse or confer benefit must be founded on a sound, transparent, discernible and well-defined policy, which shall be made known to the public by publication in the Official Gazette and other recognised modes of publicity and such policy must be implemented/executed by adopting a non-discriminatory and non-arbitrary method irrespective of the class or category of persons proposed to be benefited by the policy."

Crucially, the Court in Natural Resources Allocation, In Re, Special Reference No. 1 Of 2012 (Supreme Court Of India, 2012), also referencing Akhil Bhartiya Upbhokta Congress, added: "there cannot be any policy, much less, a rational policy of allotting land on the basis of applications made by individuals, bodies, organisations or institutions dehors an invitation or advertisement by the State or its agency/instrumentality. By entertaining applications made by individuals, organisations or institutions for allotment of land or for grant of any other type of largesse the State cannot exclude other eligible persons from lodging competing claim." Such an approach is deemed arbitrary, discriminatory, and an act of favouritism or nepotism, violating Article 14.

The absence of such a policy or deviation from it can lead to actions being struck down, as seen in Common Cause, A Registered Society v. Union Of India And Others (1996 SCC 6 530), where arbitrary allotment of petrol pumps by a Minister without adherence to transparent criteria was quashed.

State Largesse in Contractual Matters and Tenders

The award of government contracts and the process of inviting tenders are significant avenues for the distribution of State largesse. The principles of fairness, non-discrimination, and adherence to pre-disclosed criteria are paramount.

In Ramana Dayaram Shetty (1979 SCC 3 489), the Supreme Court underscored that State entities must strictly adhere to the eligibility criteria they set forth in tender documents. Deviation from these standards without rational justification is arbitrary. Similarly, Sterling Computers Limited (1993 SCC 1 445) condemned the renewal or extension of a contract on more favorable terms without a fresh tender process as violative of Article 14.

The Supreme Court in Food Corporation Of India v. M/S Kamdhenu Cattle Feed Industries (1993 SCC 1 71) acknowledged that while public authorities aim to maximize public benefit, their actions must still be non-arbitrary. FCI's decision to negotiate with all tenderers after finding the highest bid inadequate was upheld because it was reasoned and offered a fair opportunity to all. This reflects the principle of "legitimate expectation," where bidders expect fair consideration, though this expectation must be balanced against the larger public interest (M/S. G.N Engineers v. Union Of India & Ors., Jammu and Kashmir High Court, 2010, citing FCI v. Kamdhenu).

However, the power of judicial review in tender matters is circumscribed. As laid down in Tata Cellular v. Union Of India (1994 SCC 6 651) and reiterated in cases like Jagdish Mandal v. State Of Orissa And Others (2007 SCC 14 517), Michigan Rubber (India) Limited v. State Of Karnataka And Others (2012 SCC 8 216), and Bakshi Security And Personnel Services Private Limited v. Devkishan Computed Private Limited And Others (2016 SCC 8 446), courts do not sit as appellate authorities over administrative decisions. Judicial review is intended to prevent arbitrariness, irrationality, unreasonableness, bias, and mala fides. The focus is on whether the decision-making process was lawful, not whether the decision itself was "sound." Interference is warranted if the process is mala fide, intended to favour someone, or so arbitrary and irrational that no responsible authority could have reached it, or if public interest is adversely affected. Notably, these cases emphasize that "distribution of State largesse (allotment of sites/shops, grant of licences, dealerships and franchises) stand on a different footing as they may require a higher degree of fairness in action" (Jagdish Mandal, 2007 SCC 14 517; Himachal Pradesh Housing And Urban Development Authority v. Universal Estate And Another, 2010 SCC 14 253).

The State has greater latitude in formulating tender conditions, but this discretion is not unfettered and must not be malicious or a misuse of statutory powers (Michigan Rubber, 2012 SCC 8 216). The practice of inviting tenders is for social welfare, and every qualified person has a right to be considered fairly (Khoi Singnar v. The State Of Assam And Ors., Gauhati High Court, 1980).

Natural Resources as State Largesse: The Public Trust Doctrine

Natural resources hold a special position within the framework of State largesse. They are considered national assets, and the State acts as a trustee on behalf of the people. The Public Trust Doctrine is central to their allocation.

In Centre For Public Interest Litigation And Others v. Union Of India And Others (2012 SCC 3 1), concerning the allocation of 2G spectrum, the Supreme Court held that natural resources like spectrum must be allocated in a manner that subserves the public good and avoids arbitrariness. The Court found the "first-come-first-served" policy adopted by the DoT, especially with retrospective changes to cutoff dates, to be arbitrary and violative of Article 14. It emphasized that auction is generally the preferred method for allocating scarce natural resources to ensure transparency and maximize public revenue, though it did not declare it the only permissible method in all circumstances, a point clarified in Natural Resources Allocation, In Re, Special Reference No. 1 Of 2012. The core principle remains that the allocation must be fair, transparent, non-discriminatory, and in the public interest.

Judicial Review of State Largesse Distribution: Scope and Limitations

While the State has discretion in distributing largesse, this discretion is not absolute and is subject to judicial review. The courts act as sentinels to ensure that such distribution aligns with constitutional principles.

As established in Tata Cellular (1994 SCC 6 651), judicial review primarily focuses on the decision-making process rather than the merits of the decision itself. The grounds for review include illegality, irrationality (Wednesbury unreasonableness), and procedural impropriety. The court will assess "whether the process adopted or decision made by the authority is mala fide or intended to favour someone; OR Whether the process adopted or decision made is so arbitrary and irrational that the court can say: ‘the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached’; (ii) Whether public interest is affected" (Jagdish Mandal, 2007 SCC 14 517).

The judiciary exercises restraint, especially in complex economic or technical matters, and will not substitute its own judgment for that of the executive unless the decision is demonstrably flawed on established legal grounds. However, as noted, cases involving the distribution of State largesse often demand a "higher degree of fairness in action" (Bakshi Security, 2016 SCC 8 446). The aim of judicial review is to check if the choice is made "lawfully," not if it is "sound."

Accountability and Misfeasance in Public Office

The improper distribution of State largesse, tainted by arbitrariness, nepotism, or corruption, can lead to legal consequences for the officials involved. The concept of "misfeasance in public office" is relevant here.

In Common Cause, A Registered Society v. Union Of India And Others (1996 SCC 6 530), the Supreme Court quashed arbitrary allotments of petrol pumps made by a Union Minister, finding the actions violative of Article 14 due to nepotism and favouritism. The Court initially directed the Minister to show cause regarding exemplary damages. However, in a subsequent review petition, Common Cause, A Registered Society v. Union Of India And Others (1999 SCC 6 667), the Court clarified the stringent requirements for establishing misfeasance in public office, which typically requires proof of malice or knowledge of illegality, and identifiable harm to a specific plaintiff. The earlier directions for exemplary damages were recalled, emphasizing that such damages must have a rational basis and cannot be arbitrarily imposed. These cases underscore the judiciary's role in holding public officials accountable while adhering to established legal principles for liability.

Balancing Competing Interests: Public Interest, Economic Development, and Social Welfare

The distribution of State largesse often involves balancing various competing public interests, including economic development, environmental protection, and social welfare.

In Sachidanand Pandey And Another v. State Of West Bengal And Others (1987 SCC 2 295), the Supreme Court upheld the government's decision to lease land from a zoo for a hotel, finding that the decision was taken after due consideration of environmental and economic factors and was in the public interest of promoting tourism and economic growth. The Court acknowledged that rigid adherence to methods like public auction might not always be optimal in specialized commercial transactions, provided the process is fair and transparent.

The distribution of largesse can also be a tool for achieving socio-economic objectives outlined in the Directive Principles of State Policy. As noted in Agnes Kharshiing v. State Of Meghalaya (Meghalaya High Court, 2014), "State largesse is directly linked to the principle of socialism," and providing benefits like TVs or laptops to eligible persons as per a government order can serve a public purpose, aligning with Articles 38, 39, 41, 43, 45, 46, and 47 of the Constitution. Similarly, providing assistance in the form of goods to female building workers to make their lives "convenient and comfortable" was found to be in consonance with Article 21 and the goal of social justice (Kuldeep & Another Petitioners v. State Of Himachal Pradesh And Others S, Himachal Pradesh High Court, 2017).

Laws relating to economic activities are often viewed with greater latitude by courts, recognizing that the legislature must deal with complex problems that do not admit of straight-jacket solutions (Yash Pramesh Rana And Others v. State Of Maharashtra And Another, Bombay High Court, 2020, citing R. K. Garg). However, any classification must still be reasonable and bear a just relation to the object sought to be achieved.

Conclusion

The distribution of State largesse in India is governed by a robust framework of constitutional and judge-made law, primarily emanating from Article 14's mandate of equality and non-arbitrariness. The State and its instrumentalities are not free to dispense largesse at their whim; their actions must be guided by clear, transparent, and non-discriminatory policies, ensuring fairness and equal opportunity. Whether in contractual matters, tender processes, or the allocation of natural resources, the State is expected to act in the public interest, maximize public benefit, and adhere to procedural propriety.

While judicial review provides a crucial check against abuse of power, courts exercise a degree of restraint, intervening primarily when decisions are vitiated by mala fides, irrationality, or a clear disregard for public interest. The jurisprudence emphasizes a higher degree of fairness in the distribution of State largesse, reflecting its character as public property held in trust for the people. Ultimately, the principles governing State largesse aim to ensure that public resources are utilized for the collective good, fostering accountability, transparency, and adherence to the rule of law, thereby strengthening the foundations of a just and equitable democratic society. The consistent pronouncements from various High Courts, such as in STANDARD TRADING COMPANY v. THE SHIPPING MASTER GOVT. SHIPPING OFFICE (Bombay High Court, 2024) citing Ram and Shyam Company, and DHARMESWAR DAS v. THE STATE OF ASSAM AND 5 ORS. (Gauhati High Court, 2021) citing Kasturilal Lakshmi Reddy, reinforce the enduring importance of fairness in these actions.

References

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