Singh, C.J:—These appeals have been filed for setting aside judgments of a learned Judge allowing two writ applications filed on behalf of the two petitioners (hereinafter referred to as “the petitioners”).
2. The writ applications had been filed making a grievance that the Marine Engineer, Marine Organisation, Farakka Barrage Project, after having accepted the highest tenders offered by the petitioners for the sale of the two Floating Derrick Cranes, cancelled the said acceptance without assigning any reason.
3. An advertisement was published by the Marine Engineer in different newspapers on 24.8.88 inviting tenders from the Scrap dealer/Reroller/Contractors for the sale of the marine crafts which included two Floating Derrick Cranes lying on the upstream Marine site office, Farakka. Pursuant to the said advertisement the two petitioners, viz., Shri Siddeswar Halder and Paramananda Chowdhury submitted their tenders in respect of the two Derrick Cranes. It is an admittied position that the tenders submitted on behalf of the petitioners were the highest. In due course they were forwarded to the Superintending Engineer by the Marine Engineer for approval. The Superintending Engineer Circle No. V, Farakka Barrage Project, Government of India, Ministry of Water Resources, by a communication dated 20.9.88 accorded the approval as follows:
The Marine Engineer,
Marine Organisation,
Farakka Barrage Project
Sub: Auction sale of Marine Crafts
Ref: Your letter No. ME/DB-Action/1744 (We) dated 19.9.88
Approval is hereby accorded for acceptance to the highest bid amounting to Rs. 2,45,000/- (Rupees Two lakhs and forty five thousand) only against the item No. 2 only i.e 33/10 Ton Derrick Crane to the following Agencies on the terms and conditions as stipulated in the N.I.T and Tender documents.
1) Sri Siddeshwar Halder. Rs. 1,22,500/- for Rajhansi-I New Farakka.
2) Sri Paramananda Chowdhury. Rs. 1,22,500/- for Rajhansi-II.
********”
4. The Marine Engineer by letters dated 30.9.88 addressed to the petitioners accepted their highest bid, saying that the highest bid was being accepted by him on behalf of the President of India on the terms and conditions stipulated in the notice inviting tenders and the related tender documents. After having accepted the highest bid of the petitioners the Marine Engineer cancelled the acceptance letters on 17.10.1988 without assigning any reason.
5. In the affidavits-in-opposition filed on behalf of the Marine Engineer, General Manager and other officers of the Farakka Barrage Project, it was stated that the two Floating Derrick Cranes had been declared surplus by the Tenth Disposal Committee in the year 1983. Thereafter a decision was taken to invite tenders for sale thereof. It was also stated that the reserve price for those two Cranes was fixed at 10% of the book value consideration, which consideration had been accepted by the then General Manager, Farakka Barrage Project by his communication dated 18.7.88 It has been admitted by the respondents that the two petitioners had made the highest offer of Rs. 1,22,500/- each for the two Cranes and the then Marine Engineer had recommended for acceptance of their highest bid which was accepted by the Superintending Engineer on 20.9.88 The acceptance of the tenders submitted by the petitioners were communicated by the Marine Engineer by letters dated 30.9.88 It has been stated that on 6.10.88 the two petitioners were asked not to deposit the amount in question and ultimately both the acceptance letters were cancelled by the then Marine Engineer on 17.10.83 as per instructions of the present General Manager, Farakka Barrage Project.
6. It may be mentioned that neither in the communications nor in the affidavits-in-reply any specific reason was mentioned for cancellation of the acceptance of the tenders submitted on behalf of the two petitioners in respect of the two Cranes.
7. A learned Judge of this Court after referring to the pleadings of the parties came to the conclusion that the acceptance of the tenders submitted on behalf of the petitioners had been cancelled without observing the principle of natural justice. The learned Judge held that there was no justification on the part of the respondents of the writ petitions to cancel the acceptance of tenders submitted on behalf of the petitioners. Accordingly, he quashed the impugned communications
8. It appears that on 17.12.90 while considering the prayer of the appellants for interim relief in these appeals this Court directed the appellants to afford an opportunity to the petitioners to show cause against the grounds for cancellation of the acceptance of the tenders of the petitioners and thereafter to pass a reasoned order.
9. Pursuant to the direction aforesaid, show cause notices were issued to the petitioners. They filed their reply to the said show cause notices. On 19.1.1991 the General Manager, Farakka Barrage Project upheld the earlier order of cancellation of the acceptance of the tenders saying that as the two Cranes had not been declared as “scrap”, the reserve price thereof should not have been fixed @ 10% of the purchase price; rather it should not have been less than 40% of the book value. He also observed that the book value in the present case should have been based on the market price as the goods were sold in public auction and not to Government department or agency. According to him the whole procedure as regards fixations book value and the reserve price adopted by the Department was erroneous and in violation of the Government Disposal Rule.
10. It may be mentioned that in the notice inviting the tenders there was no mention that the two Cranes had been declared as “surplus” and not as “scrap” by the Disposal Committee of the appellants; rather the tenders had been invited from Scrap dealers/Reroller/Contractors.
11. On behalf of the writ petitioners our attention was drawn to a communication dated 18.7.88 addressed by the General Manager, Farakka Barrage Project, Ministry of Water Resources, Government of India, addressed to the Superintending Engineer, in connection with the disposal of the two Cranes. The General Manager communicated his acceptance in the following words:
“In continuation of this office letter No. S-132.C.V./Loose/1196 (2), dated 31.5.88, this is to inform you that the undersigned accepts the proposal to fix the reserve price @ 10% of the Book Value of Survey Report No. 1 of 84-85 for Cargo Carrier (Bahika-1) and 2 of 84-85 for Floating Dertick Crane 2 Nos. of the Marine Organisation, F.B Project, as submitted vide his letter No. ME/DB/Disposal/699, dated 28.4.88”
(emphasis added)
12. It has rightly been pointed out on behalf of the petitioners that when the General Manager fixed the reserve price @ 10% of the book value, the two Cranes had been treated as “scrap”. Even the Counsel appearing on behalf of the appellants admitted that reserve price @ 10% of the book value can be fixed only when the article is being treated as “scrap”. In the affidavits-in-opposition filed before the learned Judge, it was not said that the two Cranes had not been declared as “scrap” and as such they should not have been sold as “scrap”. This stand was taken for the first time when the Appellate Court directed the appellants to afford a reasonable opportunity to the petitioners to show cause and thereafter to pass a reasoned order.
13. Now it is being said that there is a different procedure for disposal of an article declared as “surplus” and an article declared as “scrap”. In this connection our attention was drawn by the learned Counsel far the appellants to a communication dated 25.11.83 issued by the Ministry of Irrigation, Government of India to the General Manager, Farakka Barrage Project indicating the disposal procedure for stores and equipments of that project. In that the terms “surplus stores”, “unserviceable stores” and “scrap” have been defined “Surplus stores” have been defined to mean such stores which cannot be utilised against the present or anticipated requirements. Whereas the “scrap” denotes stores which have become ‘unserviceable due to the use and considered under proper authority to be of no value except as scrap’. It had also been decided that the reserve price in respect of “scrap” should be fixed at 10% of the book value; whereas in respect of other articles 40% of the book value was to be fixed as reserve price. In the instant case there is no dispute that from the level of the Marine Engineer upto the General Manager, a decision had been taken to fix 10% of the book value as the reserve price. That was to be done only in respect of sale of “scrap”.
14. On behalf of the appellants our attention was also drawn to a communication dated 7.8.84 from the office of the General Manager of the Project communicating the sanction to declare the Marine Crafts including two Cranes as “unserviceable” or “surplus” to the requirement of Farakka Barrage Project. Whatever may be the position in 1984, the two Cranes were treated in the year 1988 for disposal as “scrap” and the petitioners have acted in terms of the advertisement. Even in the order dated 19.1.91 which has been passed by the General Manager, pursuance to the interim directions given by the Appellate Court, nothing has been mentioned as to how the two Cranes should be treated as “surplus” and not “scrap”. It has been simply stated that since the goods were not declared as “scrap”, the reserve price should not have been fixed at 10% of the purchase price.
15. The learned Counsel appearing for the appellants then submitted that in the facts and circumstances of the present case the petitioners are seeking to enforce a contract which is not permissible while invoking the writ jurisdiction of this Court. In this connexion he placed reliance on the judgment of the Supreme Court in the case of The Divisional Forest Officer v. Bishwanath Tea Co. Ltd. (AIR 1981 SC 1368), where it was pointed out on the facts and circumstances of that case that it was not open to the company in question to enforce a contractual right under the specific terms of the contract of lease, agreed to between the company and the Government in an application under Article 226 of the Constitution. From a bare reference to the facts of that case it shall appear that a formal deed of lease had been executed between the company and the Government. It was then found that in substance the company was seeking to enforce some of the terms of such lease by invoking the writ jurisdiction of the High Court. Here it is an admitted position that no formal agreement was ever executed at any stage between the appellants and the petitioners for sale of the two Marine Crafts.
16. The Supreme Court in the well known case of Radha Krishna Agarwal v. State of Bihar (AIR 1977 SC 1496) examined different types of contracts in connection with the exercise of power under Article 226 of the Constitution and then it was said as follows:
“The Patna High Court had, very rightly divided the types of cases in which breaches of alleged obligation by the State or its agents can be set up into three types. These were stated as follows:
(i) Where a petitioner makes a grievance of breach of promise on the part of the State in cases where on assurance or promise made by the State he has acted to his prejudice and predicament, but the agreement is short of a contract within the meaning of Article 299 of the Constitution;
(ii) Where the contract entered into between the person aggrieved and the State is in exercise of a statutory power under certain Act or Rules framed thereunder and the petitioner alleges a breach on the part of the State; and
(iii) Where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual and the rights and liabilities of the parties are governed by the terms of the contract, and the petitioner complains about breach of such contract by the State.”
17. Patna High Court had held that so far cases coming under categories (i) and (ii) were concerned, a writ application under Article 226 of the Constitution was maintainable. So far cases falling in category (iii) was concerned, i.e where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual and the petitioner complains about the breach of the terms of such contract by the State, it had been held that no application invoking jurisdiction of the High Court under Article 226 of the Constitution was maintainable. After referring to cases falling under category (iii) it was said by the Supreme Court as follows:—
“It then, very rightly, held that the cases now before us should be placed in the third category where questions of pure alleged breaches of contract are involved. It held, upon the strength of Umakant Saran v. State of Bihar, AIR 1973 SC 964 and Lekhraj Sathram Das v. N.M Shah, AIR 1966 SC 334 and B.K Sinha v. State of Bihar, AIR 1974 Patna 230 that no writ or order can issue under Article 226 of the Constitution in such cases “to compel the authorities to remedy a breach of contract pure and simple,”
18. Thereafter it has been pointed out by the Supreme Court in several cases that if the authorities which can be held to be the State within the meaning of Article 12 of the Constitution, act in a manner which can be held to be unreasonable, arbitrary and lacking in fair play then the power under Article 226 of the Constitution has to be exercised.
19. In the case of Ramana Dayaram Shetty v. The International Airport Authority of India (AIR 1979 SC 1628) it was said that “modern welfare State which is committed to egalitarian values and dedicated to the rule of law”, has to act while awarding contract, under the constitutional mandate of Article 14, as also the judicially evolved rule of administrative law. It was then observed:
“It must, therefore, be taken to be the law that where the Government is dealing with the public, where by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largess, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norm which is not arbitrary, irrational or irrelevant.”
20. In Kasturi Lal Lakshmi Reddy etc. v. The State of Jammu and Kashmir, (AIR 1980 SC 1992) again it was reiterated:
“Whatever be its activity, the Government is still the Government and is, subject to restraints inherent in its position in a democratic society. The constitutional power conferred on the Government cannot be exercised by it arbitrarily or capriciously or in an unprincipled manner.”
21. It was impressed in the case of Maneka Gandhi v. Union of India, (AIR 1918 SC 597), that rule of reason, rule against arbitrariness and discrimination, rule of fair play and natural justice are part of the rule of law applicable in the actions by the State instrumentality.
22. In Mahabir Auto Stores v. Indian Oil Corporation, (AIR 1990 SC 1031) the same question was considered. In that case the petitioners' firm was carrying on business of sale and distribution of lubricants for 18 years on the basis of supply being made by Indian Oil Corporation. Abruptly the supply of lubricants was stopped to the firm by the Indian Oil Corporation without any notice or intimation. In that connection it was pointed out as follows:
“In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contract, As tide 14 springs up and judicial review strikes such an action down”
23. In yet another case of Star Enterprises v. The City & Industrial Development Corporation of Maharashtra Ltd., 1990 (3) SCC 280) it was said by the Supreme Court:
“In recent times, judicial review of administrative action has become expansive and is becoming wider day by day. The traditional limitations have been vanishing and the sphere of judicial scrutiny is being expanded. State activity too is becoming fast pervasive. As the State has descended into the commercial field and giant public sector undertakings have grown up the sake of the public exchequer is also large justifying larger social audit, judicial control and review by opening of the public gaze; these necessitate recording or reasons for executive actions including case of rejection of highest offers. That very often involves large stakes and availability of reason for actions on the record assures credibility to the action disciplines public conduct and improves the culture of accountability. Looking for reasons in support of such action provides an opportunity for an objective review in appropriate cases both by the administrative superior and by the judicial process”
(Emphasis added)
24. In connection with the termination of the appointment of the District Government Counsel by the State Government of Uttar Pradesh the same question was considered by the Supreme Court in the case of Kumari Shrilekha Vidyarthi etc. v. State of U.P (AIR 1991 SC 537) where it was said:—
“Applicability of Article 14 to all executive actions of the State being settled and for the same reason its applicability at the thereshold to the making of a contract in exercise of the executive power being beyond dispute, can it be said that the State can thereafter cast off its personality and exercise unbridled power unfettered by the requirements of Article 14 in the sphere of contractual matters and claim to be governed therein only by private law principle applicable to private individuals whose rights flow only from the terms of the contract without anything else? We have no hesitation in saying that the personality of the State requiring regulation of its conduct in all spheres by requirements of Article 14, does not undergo such a radical change after the making of a contract merely because some contractual rights accrue to the other party in addition. It is not as if the requirements of Article 14 and contractual obligations are alien concepts, which cannot co-exist”
25. Recently a Full Bench of Patna High Court in the case of Pancham Singh v. The State of Bihar, (Civil Writ Jurisdicion Case No. 7116 of 1990 disposed of on 25th January, 1991) considered the question of maintainablity of a writ application under Article 226 of the Constitution, where a former agreement in terms of Article 299 of the Constitution had been executed. That contract was suddenly cancelled without assigning any reason in the counter-affidavit filed before the High Court, on behalf of the State it was said that after the execution of the agreement in favour of the petitioner of that writ application, the Central Water Commission was consulted and the said Commission doubted the estimate of the cost of the scheme. It was further said in the counter-affidavit that the Commission was of the view that by an alternative design the cost of the scheme can be reduced. The Full Bench came to the conclusion that as the contract had been cancelled on a ground de hors any of the terms of the contract it cannot be said that the petitioner of that writ application was making grievance of breach of any of the terms of the contract so that it can be held that his case was covered by category (iii) indicated by the Supreme Court in the case of Radhakrishna Agarwal v. State of Bihar (supra).
26. When the ground for cancellation of the agreement is in no way referable to any of the terms of the agreement and the action impugned is arbitrary, unreasonable and violative of Article 14 of the Constitution, then writ application under Article 226 of the Constitution is maintainable. This can be appreciated by an example. After execution of an agreement in accordance with Article 299 of the Constitution, the contractor is asked by the authority concerned not to proceed with the construction of the project on the ground that later it has been discovered that such contractor is not resident of the district in which the project is to be constructed. Can it be urged in such a situation, that as the contractor has entered into an agreement with the State Government, he cannot invoke the jurisdiction of this Court under Article 226 of the Constitution and he should be directed to knock the door of civil court for damages or specific performance of the contract, although the order is per se violative of Article 14 of the Constitution?
27. Apart from three categories mentioned by the Supreme Court in the judgment of Radhakrishna Agarwal (supra), under the changed circumstances, according to me there are cases which can be placed in category (iv):—
“Where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual but such contract has been cancelled on a ground, de hors any of the terms of the contract, and which is per se violative of Article 14 of the Constitution.”
28. Even in such cases applications under Article 226 of the Constitution shall be maintainable.
29. At the same time it should be pointed out that the High Court while exercising jurisdiction under Article 226 of the Constitution, which is discretionary, cannot issue a writ of mandamus in the nature of a decree for specific performance of contract. However it can direct the authority concerned to follow the rule of fair play and to act in a reasonable manner.
30. The facts of the present case are different from the facts of the case of The Divisional Forest Officer v. Biswanath Tea Co. Ltd. (AIR 1981 SC 1368) relied on by the learned Counsel for the appellants where a formal deed of lease had been executed and the petitioner company was seeking to enforce one of the terms of the deed of lease while invoking the writ jurisdiction of the High Court under Article 226 of the Constitution. In the present case it is difficult to hold that the petitioners are enforcing any terms of the contract or seeking a decree for specific performance of the contract while invoking the writ jurisdiction of this Court. Their grievance is that the order accepting their highest tenders in respect of purchase of two Marine Craft has been cancelled without disclosing any reason Even after an interim direction given by the Appellate Court, the ground which has been disclosed to them is arbitrary, because it is not borne out from the materials on record referred to above; as such the cancellation of the order of acceptance of their tenders is violative of Article 14 of the Constitution.
31. The State and its instrumentalities do not have the absolute right like a private individual to enter into contract with any one and to cancel the same. While cancelling a contract they have not only to follow a procedure which should be consistent with Article 14 of the Constitution i.e after observing the rules of fair play and the principles of natural justic but the grounds for such cancellation should also be reasonable and not arbitrary. Any executive decision has to be tested on the touchstone of Article 14 of the Constitution not only so far as its procedural part is concerned but also in respect of its substantive part. Even in a case where the procedural part has been followed still the Court can examine whether the ultimate decision is consistent with the requirement of Article 14 of the Constitution. While doing so, it should not be overlooked that in exercise of the power of judicial review, the High Court should not substitute its own judgment for the decision taken by the executive authority. Such decision should be interfered with only if this Court is satisfied that the action taken or order passed even from the administrative point of view is arbitrary or unreasonable.
32. From the different communications referred to above, it is established that the decision to sell the two Cranes was taken at the highest level. Treating them to be “scrap” it was directed to fix 10% of the book value as the reserve price instead of 40% if they had not been treated to be “scrap”. The highest tenders submitted on behalf of the petitioners were recommended by the Marine Engineer to the Superintending Engineer who accepted the same. At no stage any controversy was raised that the two Cranes were not “scraps”. This stand was not taken even before the learned Trial Judge in the affidavits-in-opposition. It has been taken for the first time after the Appellate Court issued an interim direction to the appellants to afford an opportunity to the petitioners to show cause against the ground for cancellation of the acceptance of their tenders. There is no allegation on behalf of the appellants either in any of the communications or during arguments before this Court that some staff of the Farakka Barrage Project in collusion of the petitioners accepted the highest tenders of the petitioners treating the two Cranes as “scrap” although in fact they were not “scrap”. In this background, there was no justification on the part of the appellants to cancel the acceptance of the tenders submitted by the petitioners. The action of the appellants cannot be held to be reasonable and fair in the facts and circumstances of the case.
Accordingly the appeals fail and they are dismissed but there shall be no order as to costs.
A. Kabir, J.:—I agree.
Appeals dismissed.