Home case analysis R.D. Shetty vs. The International Airport Authority of India (1979)

R.D. Shetty vs. The International Airport Authority of India (1979)

July 15, 2024

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This article has been written by Syed Owais Khadri. This article provides a comprehensive study of the landmark ruling rendered by the Hon’ble Supreme Court in R.D. Shetty vs. The International Airport Authority of India (1979). The article discusses the facts, arguments, judgement, and reasoning in detail. It also sheds light on the point of law involved and discussed in the case. Additionally, the article also attempts to provide an analysis of the judgement.

This article has been published by Shashwat Kaushik.

Table of Contents

Introduction

The recent hoarding collapse in Mumbai that resulted in the deaths of 17 people was nothing but a result of non-compliance with rules and regulations and a lack of accountability and ignorance of the executive or local administration. The hoarding that collapsed was an illegal one that was installed, violating almost every single mandate, rule, or regulation that was in place in that particular regard. Firstly, it was installed illegally without the complete permission of the local administration. Secondly, the size of the hoarding was three times greater than what was generally permitted. Thirdly, the hoarding was not installed following the methods that prevent it from being affected by strong winds. Lastly, and most importantly, the local administration had taken no action against the installer, although it had been present there for a long time.

The aforementioned case highlighted one of the most important concerns concerning government accountability, i.e., the deviation of the executive from the general law in place or the lack of compliance or ignorance of rules and regulations or standard norms by the administration. The case of Ramana Dayaram Shetty vs. The International Airport Authority of India (1979), which is discussed in this article, involves a similar issue of the deviation of the administration from the standard norms or rules set forth by itself.

This case was an appeal filed before the Hon’ble Supreme Court of India, challenging the decision of the Hon’ble High Court of Bombay. The appellant had filed a writ petition before the latter against the International Airport Authority of India and others on the grounds of arbitrary action in awarding the contract for running a restaurant in the international airport in Bombay through the process of tender submission. This petition was rejected by the Hon’ble High Court of Bombay, and subsequently, the appeal was also rejected by the Hon’ble Supreme Court. This article discusses the case in a detailed manner, as follows:

Details of the case

The following are some of the important details of the case discussed in this article:

Case Name: Ramana Dayaram Shetty vs. The International Airport Authority of India (1979)
Case No.: Civil Appeal. 895 of 1978
Parties to the case:
- Petitioner(s): Ramana Dayaram Shetty.
- Respondent(s): The International Airport Authority of India (hereinafter referred to as “Respondent 1”) and Ors.
Equivalent Citations: AIR 1979 SC 1628, (1979) 3 SCC 489
Court: Supreme Court of India
Bench: Justices. P.N. Bhagwati, V.D. Tulzapurkar, and R.S. Pathak.
Judgement Date: 4th May, 1979

Facts of the case

The International Airport Authority of India, established under the International Airports Authority Act, 1971, issued a notice inviting tenders for setting up and running the business of a second-class restaurant and two snack bars at the International Airport in Bombay on January 3, 1979. Some of the specifications laid out in the notice are as follows:
- The period of the contract was 3 years.
- The eligibility for sending the tenders was a registered second-class hotelier with a minimum of 5 years of experience in the restaurant business.
- The time for submission of the tenders began at 12:30 hours on the same day of the issue of notice, i.e., January 3, 1977, and the deadline was set at 12 hours on January 25, 1977.
- The tenders had to be submitted in the prescribed format.
- The acceptance of the tender was completely at the discretion of the Airport Director, who had complete rights to accept or reject any or all of the tenders or to negotiate with anyone he considered eligible and fit to award the contract.
Respondent 1 received six tenders, out of which only one tender that was sent by Respondent 4 fully complied with the terms and conditions of the tender form. The rest of the tenders submitted to the airport director lacked compliance with one or the other terms laid down in the notice inviting tenders. Besides, the order submitted by Respondent 4 was also offering the highest bid among all six tenders.
One of the letters submitted by Respondent 4 pointed out that they had 10 years of experience in the catering business. However, the airport director noted that Respondent 4 had experience running canteens but not restaurants, which did not match the requirements/eligibility to submit tenders that were specified in the invitation. In this regard, the airport director asked Respondent 4 to show documentary evidence to prove that they were a registered second-class hotelier with a minimum of 5 years of experience.
Respondent 4 then submitted a letter dated February 22, 1977, to the airport director, pointing out that they had, in addition to what was set out in their earlier letter dated January 24, 1977, experience running canteens for Phillips India Ltd. and Indian Oil Corporation. Moreover, they held an Eating House Licence granted by the Bombay Municipal Corporation since 1973, issued under the Prevention of Food Adulteration Act, 1954. They asserted that they thus had 10 years of experience in the catering line. They also mentioned that their sole proprietor had experience equivalent to that of a second or even first-class hotelier.
Respondent 1, satisfied with the explanation from Respondent 4, accepted the tender bid from them with the terms and conditions specified in the letter, proceeded with the procedural and other requisite work, and successfully entered into the agreement/contract with Respondent 4. Respondent 4 paid a fixed deposit receipt of Rs. 39,999, and the licence fee was fixed at Rs. 6666.66 for one month.
Meanwhile, K.S. Irani filed a suit challenging the decision of Respondent 1 to accept the tender submitted by Respondent 4. He obtained an interim injunction, which was later vacated by the Court on October 10, 1997. He filed an appeal before the Hon’ble High Court of Bombay, which was also dismissed on October 19, 1977.
However, respondent 1 failed to hand over possession of the requisite sites as per the agreement to respondent 4 to carry out the business. The earlier party (A.S. Irani) carrying out the business at those sites refused to give possession despite the expiry of the earlier contract, and the airport director (Respondent 2) did not facilitate it either, as a result of which Respondent 4 was incurring losses.
Besides, A.S. Irani refused to hand over the sites and continued to carry out his business despite the expiration of the old contract. Thus, Respondent 1 handed over two new sites to Respondent 4 for setting up two snack bars. The two sites were different from those occupied by A.S. Irani.
However, Respondent 1 could not give a site to Respondent 4 for setting up the restaurant since there was no other appropriate site available other than the one occupied by A.S. Irani. As a result, Respondent 1 filed a suit against A.S. Irani and obtained an injunction order against Irani. However, A.S. Irani made further attempts to restrain the respondent 4 from peacefully carrying out the business.
Respondent 1 failed to hand over the other site for setting up the restaurant due to the attempts by A.S. Irani. Therefore, the licence fee for only the two snack bars was decided at Rs. 4500 for a one-month mutual agreement.
Furthermore, a civil suit was filed by A.S. Irani on October 24, 1977, to restrict Respondent 4 from setting up and carrying out the business. However, all the attempts eventually failed due to the rejection of suits.
Later, the appellant, in this case, approached the Hon’ble High Court of Bombay by filing a writ petition challenging the decision of Respondent 1 to accept the tender of Respondent 4 (hereinafter referred to as the “impugned decision”).
The said petition was dismissed by a single judge bench of the High Court. It was later appealed before a division bench, which dismissed it as well. Ultimately, the appellant then approached the Hon’ble Supreme Court by filing a Special Leave Petition challenging the dismissal of the writ petition by the Bombay High Court.

Note: The appellant in this case was a person who did not submit the tender as he did not satisfy the conditions laid down in the invitation notice, and he was on the same level as Respondent 4. The appellant approached the court after the tender of Respondent 4 was accepted by Respondent 1 even though it did not satisfy the eligibility conditions on the ground that he was denied equal opportunity.

Issues raised in R.D. Shetty vs. The International Airport Authority of India (1979)

Whether the decision of Respondent 1 to accept the tender of Respondent 4 despite it not qualifying the eligibility criteria was invalid and consequentially liable to be set aside?

The aforementioned issue involved the examination of various sub-issues, which are as follows:

Whether the requirement of a registered second-class hotelier was invalid and meaningless?
Whether Respondent 1 had the authority to reject all the tenders and directly negotiate with Respondent 4? Whether the effect of it would be the same as that of following the procedure of tendering?
Whether the petition filed by the appellant was maintainable?
Whether the International Airport Authority of India fell within the meaning and definition of “State” under Article 12?

Laws involved

The legal provisions in this case mainly revolved around the constitutional provisions under Part III of the Constitution, specifically the meaning, definition, and scope of the “State” and the right to equality. Some of the relevant legal provisions that were examined in this case are as follows:

Constitution of India

The Constitution of India guarantees various fundamental rights under Part III, which consists of Articles 12 to 35. The fundamental rights and other constitutional provisions that are relevant and were discussed in this case are as follows:

Article 12 of the Constitution

Article 12 of the Constitution lays down the definition of the term “State,” wherein it defines the term as “The State includes the government and parliament of India, the government and legislature of each of the States, and all local or other authorities within the territory of India or under the control of the government of India.”

The provision under Article 12 is of great significance as it lays down the authorities against whom the fundamental rights under Part III of the Constitution can be enforced. Any person aggrieved by the violation of fundamental rights can approach the Court under Article 32 of the Constitution by filing a writ petition only against the authorities who fall under the definition of “state” under Article 12.

The definition of state under this provision has a wide scope since it is not an exhaustive provision but is inclusive, which is reflected through the words “other authorities” in the definition. The scope of the definition of “state,” and more particularly, the scope of the term “other authorities” in the definition, has been expanded by the Hon’ble Supreme Court in various rulings, such as the University of Madras vs. Shanta Bai and Anr. (1953). The Apex Court in the said case held that “other authorities” under Article 12 means any authority performing governmental functions.

Additionally, the Hon’ble Supreme Court of India in the case of Rajasthan State Electricity Board vs. Mohanlal (1967) held that the term “other authorities” includes “every authority created by a statute and functioning within the territory of India, or under the control of the Government of India.” The Apex Court has further expanded the scope of the term in the case of Sukhdev Singh vs. Bhagat Ram (1975).

However, the Hon’ble Supreme Court recently, in the case of Kaushal Kishore vs. State of Uttar Pradesh (2023), ruled that the fundamental rights under Article 19 and Article 21 of the Constitution can be enforced against persons other than the state or its instrumentalities as well.

Article 14 of the Constitution

Article 14 of the Constitution guarantees the right to equality for every individual in India. It prohibits the denial of equality before the law and guarantees equal protection of the law by the state.

The provision encompasses two important aspects of equality, the first being equality before the law, which means that every individual is equal in the eyes of the law and there shall not be any privilege given to any citizen. The second aspect of equality reflects the positive content of the provision according to which the state shall ensure that there is no discrimination of any kind and every citizen is entitled to equal protection of the laws.

The Hon’ble Supreme Court, in the 1973 ruling of E.P. Royappa vs. State of Tamil Nadu (1973), held that any act that is arbitrary in nature is violative of the right to equality under Article 14 of the Constitution.

The right to equality under Article 14 was contended to be infringed in the instant case by the decision of Respondent 1 to accept the ineligible tender of Respondent 4.

Article 32 of the Constitution

Article 32 of the Constitution guarantees the fundamental right to approach the Hon’ble Supreme Court by filing a writ petition for the enforcement of other fundamental rights guaranteed under Part III of the Constitution.

Any person aggrieved by the violation of the fundamental rights enshrined under Part III of the Constitution can approach the Hon’ble Supreme Court under this provision for the enforcement of fundamental rights against the authorities falling within the scope of “State” under Article 12 of the Constitution.

The Hon’ble Supreme Court in State of West Bengal vs. Nuruddin Mallik and Others (1998) ruled that the performance of any duty that is imposed upon certain authorities as per the law is the right of the appellant. The enforcement of such rights can be ensured through the writ of mandamus, which is against the authority not performing the duty.

Article 226 of the Constitution

Article 226 confers the High Courts with powers similar to those provided under Article 32 of the Constitution. It provides a remedy for individuals to approach the High Court by filing a writ petition for enforcement of their rights. Any person aggrieved by the violation of the fundamental rights enshrined under Part III of the Constitution can approach the Hon’ble High Courts for the enforcement of their rights under this provision.

However, it is important to note that the scope of this provision is wider than that of Article 32 of the Constitution. Article 226, unlike Article 32, doesn’t limit its scope to the enforcement of fundamental rights but extends beyond it. Clause 1 of this provision ends with the phrase “…for the enforcement of any of the rights conferred by Part III and for any other purpose.” The words ‘any other purpose’ are not incorporated under Article 32, which makes the scope of this provision wider than Article 32. Therefore, any person can approach the High Courts for enforcement of rights other than fundamental rights as well, which is not possible under Article 32. Moreover, Article 226 doesn’t restrict itself against the ‘State’. It is clarified in Clause 1 that the High Court, under this provision, possesses the power to issue writs against any person or authority, which also makes the scope of the provision wider.

The decision of Respondent 1 to accept the ineligible tender of Respondent 4 was challenged before the Hon’ble High Court of Bombay under Article 226 of the Constitution.

International Airports Authority Act, 1971

The International Airports Authority Act, 1971, was enacted to provide the constitution for an authority for the management of aerodromes providing or intending to provide air transport services or any matter relating to it.

Section 3 of the Act empowered the Central Government to constitute a statutory body known as the International Airports Authority of India. The other provisions of the Act provide for the appointment, disqualification, and other matters relating to the administration of the body.

The legislation was later replaced by the Airports Authority of India Act, 1994.

Arguments of the parties in R.D. Shetty vs. The International Airport Authority of India (1979)

The appellant’s arguments were based on the sole ground of denial of equal opportunity to them, while the respondents countered the contention of the appellant under three main heads of argument. The contentions made by the appellant and respondents are as follows:

Appellant

The appellant’s main contention was based on the ground of denial of equal opportunity to him by Respondent 1 by deviating from the eligibility criteria laid down by itself.
The appellant contended that it was the duty of Respondent 1 to follow the eligibility criterion that was provided in the invitation notice. He contended that such an obligation was imposed on Respondent 1 by virtue of it qualifying as ‘State’ under Article 12 of the Constitution.
He argued that he was in the same position as respondent 4, as he was also not a registered second-class hotelier, nor did he have 5 years of experience. However, he did not submit the tender as he did not meet the eligibility criteria as per the notice.
The appellant contended that the action of respondent 1 accepting the ineligible tender of respondent 4, deviating from its eligibility criteria, resulted in the denial of equal opportunity to the appellant.

Respondent

Respondents 1 and 4 countered the contention of the appellant based on three different reasonings. The arguments presented by the respondents, particularly Respondent 1 and Respondent 4, are as follows:

Firstly, they argued that the grading as first or second class was only given to the hotels and restaurants by the Bombay Municipal Corporation and not to the persons running them, and hence, it was not possible to have a second-class hotelier as mentioned in the invitation notice because there can be second-class hotels and restaurants but not second-class hoteliers. Therefore, they contended that the requirement for a second-class hotelier was meaningless and should not be considered an eligibility criterion.
They further contended that the requirement mentioned in the notice was not to have 5 years of experience already running a second-class hotel or restaurant but to have sufficient experience, of at least 5 years, to run a second-class hotel or restaurant. They argued that respondent 4 satisfied the requirement as he had 10 years of experience, which was sufficient enough to run a hotel or restaurant of second-class grade.
Furthermore, they asserted the point mentioned in the invitation notice that the Airport Director had absolute rights to accept or reject any or all of the tenders submitted to them. He also had the right to negotiate with any person he considered eligible and fit to award the contract. Therefore, it was within the authority of the airport director to reject the tenders received and to negotiate and award the contract to respondent 4.
Secondly, they contended that the action of respondent 1 could not be challenged on the ground of deviation from the eligibility criteria laid down in the notice as it was neither backed by any statutory regulation nor was issued under any administrative rules. Therefore, they argued that even if there was any deviation from what had been specified in the notice, it did not give rise to any kind of cause of action for the appellant to challenge the deviation, nor could it be triable in any court of law.
Lastly, they contended that the writ petition of the appellant was liable to be rejected due to the lack of any bona fide intentions on his behalf. They argued that the appellant was a mere stooge of A.S. Irani, who had been making several attempts to prevent respondent 4 from carrying out the said business or obtaining the said contract. They also argued that he was a stranger to this issue as he had not submitted a tender.
Moreover, it was argued that the petition of the appellant was also liable to be rejected on the grounds of unreasonable delay.

Judgements referred to or relied upon by the respondents

The respondents relied upon the ruling delivered by the Hon’ble Supreme Court in the case of C.K. Achuthan vs. State of Kerala (1958), where it was observed that the government is completely entitled, just like a private individual, to choose the person of their choice to award and fulfil the contracts that it wants to be performed. The Court in the said case held that it could not be held as discrimination in such cases and that it would not give any right to the aggrieved to claim any protection under Article 14 of the Constitution. The respondents, based on this observation, contended that it would not be a violation of Article 14 if the “State” intends or chooses any person of its choice over another to fulfil or award the contract.
The respondents further relied upon the ruling delivered by the Hon’ble Apex Court in the case of Trilochan Mishra vs. State of Orissa (1971). The Court in the said case rejected the challenge of the petitioners to the action of the government not accepting the highest bids of tenders. It held that the government has the right to enter into a contract with a person known to them or a person who has already worked with the government in previous instances. The Court had also held that the government is not bound to accept the highest bid or tender.
The respondents also relied on the case of State of Orissa and Ors vs. Harinarayan Jaiswal and Ors (1972), which involved a scenario similar to the instant case. The said case involved a challenge to the action of the government, which had rejected all the bids and had directly negotiated with some other party. The petitioners in the said case contended that the power of the government to accept or reject any bid was arbitrary and violated constitutional provisions under Articles 14 and 19 of the Constitution. The Hon’ble Apex Court in the said case rejected the contention of the petitioners’ observation that accepting or rejecting a bid is an executive action whose validity is not open to judicial review.
Lastly, the respondents relied upon the judgement delivered in the case of P.R. Quenin vs. M.K. Tandel (1974), where the Court reaffirmed the observations made in the cases of Trilochan Mishra vs. State of Orissa (1971) and State of Orissa and Harinarayan Jaiswal (1972). It was further pointed out in this case that the government should have the liberty to accept or reject any tender without providing any reason, and it should not be considered a violation of Article 14 of the Constitution.

Judgement in R.D. Shetty vs. The International Airport Authority of India (1979)

The Hon’ble Supreme Court upheld the contention of the appellant relating to the decision of Respondent 1. It ruled that the action of Respondent 1 accepting the tender of Respondent 4 despite it not satisfying the eligibility criteria was invalid. It ruled that the decision was in violation of the standard laid down by Respondent 1 in its invitation notice. It ruled that the deviation from the eligibility criteria led to the denial of equal opportunity to the appellant and others who were in contention for obtaining the contract.

The Hon’ble Court rejected the first argument of Respondents 1 and 4, where they contended that the requirement of a registered second-class hotelier was invalid and meaningless. It held that Respondent 1 was not acting illogically and aimlessly while laying down this requirement, and neither was the requirement meaningless or irrational. It held that the requirement had a definite purpose. The Court noted that the language used was inappropriate. However, it held that the expression used by Respondent 1 was intended to mean any person carrying out a business or running a second-class hotel or restaurant. It further ruled that Respondent 4 did not satisfy the eligibility criterion or requirement in any way, and therefore, they were not eligible to submit the tender for the contract. It further held that the action of Respondent 1 accepting the tender of Respondent 4 was in violation of the requirements laid down by Respondent 1 in the invitation notice.

The Court further held the first argument of Respondent 1 as irrational and invalid. It ruled that the action of Respondent 1 accepting the tender of Respondent 4 could not be justified on the ground that Respondent 1 had the authority to do so. The Court observed that it would not be right to state that the effect of its action was the same as that would have been if the contract was awarded through the process of direct negotiations because the procedure of tenders was not terminated before directly negotiating with Respondent 4 for awarding the contract to them.

Furthermore, the Hon’ble Supreme Court rejected the contention of Respondents 1 and 4 on the maintainability of the petition on the grounds of the appellant’s irrelevance to this issue as he did not submit any tender. The Court ruled this argument invalid and unsustainable and held that the appellant’s contention of denial of equal opportunity is a valid ground for the challenge or petition, and the writ filed by him is therefore maintainable.

Moreover, the Court held that Respondent 1 is an instrumentality or agency of the government and hence falls within the meaning and definition of “State” under Article 12 of the Constitution.

The Court ultimately ruled that Respondent 1 acted arbitrarily in accepting the tender of Respondent 4, while it was obligated to follow or conform with the eligibility requirement laid down by itself in the invitation notice. It ruled that the decision of Respondent 1 to accept the unqualified tender of Respondent 4 was certainly discriminatory and invalid, as it was violative of the right to equality under Article 14 of the Constitution as well as the judicially evolved rule of administrative law prohibiting arbitrary action of the executive.

The Court observed that the norm of eligibility set forth by Respondent 1 cannot be deviated from arbitrarily. It was further observed that any such deviation from the laid norms would violate the right to equality of opportunity. It would deny opportunity to those who did not submit the tenders, believing that the eligibility norms were to be satisfied mandatorily as a prerequisite.

However, the Court eventually did not set aside the act of Respondent 1 accepting the tender of Respondent 4 and awarding them the contract. It was observed that the case involved peculiar facts and circumstances. It was noted that the petition was not filed immediately but after a certain time period. Therefore, the Court dismissed the appeal and upheld the decision of the High Court of Bombay.

Ratio decidendi

The Hon’ble Supreme Court decided all of the issues in question based on the rationale explained or discussed as follows:

Maintainability of the petition

Locus Standi of the appellant

The Hon’ble Court rejected the respondents’ contention challenging the position of the appellant to file the writ petition based on the ground that he did not even submit a tender for him to be aggrieved by the impugned decision. It held that the appellant did not file this petition on the grounds of the validity of the procedure in which the tender of Respondent 4 was accepted by Respondent 1. Instead, the petition was filed on the grounds of denial of equal opportunity to the appellant with regard to the submission of tenders. It noted that the appellant’s contention was that, if it was informed by Respondent 1 that non-fulfilment of the eligibility criteria or requirements set forth by them in the invitation notice would be no bar for the submission or consideration of a tender, then he would have submitted his tender as well. This was considered a valid argument.

Respondent 1 as State under Article 12

The Hon’ble Supreme Court relied upon the tests set forth in the decisions of Rajasthan State Electricity Board vs. Mohanlal (1967) and Sukhdev Singh vs. Bhagat Ram (1975) to determine whether Respondent 1 can be considered an authority and subsequently a “State” under Article 12 of the Constitution. It referred to the test propounded in the latter case as a satisfactory one and proceeded to examine if Respondent 1 was an instrumentality or agency of the government. It further noted that certain factors have to be taken into consideration for such a determination.

The factors noted by the Hon’ble Court are as follows:

Does the corporation receive any financial or any other kind of aid from the State, and if yes, what is the magnitude of such aid?
Does the State control the management, administration, or policies of the corporation in any manner, and if yes, what is the nature and extent of it?
Do the functions performed by the corporation qualify as public functions or closely resemble them?

However, the Court clarified that the factors mentioned above are not exhaustive but only provide an idea of the nature or kind of factors that have to be investigated or considered to determine if any corporation is an instrumentality of the government. Accordingly, it proceeded to investigate the nature and characteristics of Respondent 1.

Nature and Characteristics of Respondent 1

The Hon’ble Court answered the question of the instrumentality of the government in the affirmative after investigating the nature and characteristics of Respondent 1. It examined the powers and functions exercised by the Central Government in the affairs of Respondent 1 to ascertain its nature. It referred to the provisions of the International Airports Authority Act, 1971 (hereinafter referred to as “the Act” under this heading) and noted the role, power, and functions of the Central Government concerning the affairs of Respondent 1 as follows:

Respondent 1 (the International Airport Authority of India) is a statutory body constituted by the Central Government under Section 3 of the Act.
The Central Government is conferred with power under Section 3(3) of the Act to nominate and appoint the chairman and all other members of Respondent 1.
The Central Government is empowered or authorised to terminate the appointment of any of the members of Respondent 1 or to remove them in certain circumstances under Section 5 and Section 6 of the Act, respectively.
The Central Government is empowered under Section 33 of the Act to withdraw the management of any airport from Respondent 1 and hand it over to any other person or authority.
According to Section 34 of the Act, the Central Government has the authority to suspend Respondent 1 under certain specified circumstances.
According to Section 35 of the Act, the Central Government is empowered to give directions to Respondent 1 occasionally, in written format, relating to policy questions and such directions are binding in nature.
The Central Government provides finances to Respondent 1 for carrying out its functions.
The Central Government has the right and complete authority over the net profit made by Respondent 1 after the exclusion of all charges, debts, etc. as per Section 20 of the Act.
Respondent 1, under Section 21, is required to submit for approval a statement of the financial estimate from the Central Government, and only such expenditures approved by the government can be incurred.
Respondent 1 is obligated under Section 25 to submit its audited accounts along with the audit reports to the Central Government, which is required to present them before both Houses of Parliament.
The officers serving under Respondent 1 are deemed to be public servants according to Section 28 of the Act.
Section 29 provides immunity to Respondent 1, all of its members, officers and employees, from legal prosecution for anything done in good faith or in pursuance of provisions of the Act or any rule or regulation framed under it.
The central government is empowered under Section 36 to formulate rules for the enforcement of the Act.
Respondent 1 is empowered to frame regulations under Section 37 and to provide for penal consequences for acts in contravention of such rules and regulations under Section 39 of the Act.

After noting the role of the Central Government in the administration and functioning of Respondent 1, the Court ruled that Respondent 1 satisfies both the tests laid down in the two cases mentioned above and is undoubtedly an instrumentality or agency of the government. Consequently, it held that Respondent 1 falls within the scope of authority and, subsequently, “State” under Article 12.

Invalidity of the impugned decision

Although the Hon’ble Court acknowledged that there was no statutory or administrative regulation obligating Respondent 1 to award the contract solely through tenders, it also confirmed that Respondent 1 had the right to reject all tenders, provided this did not violate Article 14, and to negotiate with any party deemed suitable for the contract. However, the Court noted that in the current instance, Respondent 1 did not reject all the tenders, nor did it directly negotiate with Respondent 4 to award them the contract. It was noted that the procedure for tenders was not given away. The awarding of the contract to Respondent 4 was done by the same procedure as accepting its tender and not by the process of direct negotiations.

It held that Respondent 1 was obligated to conform with the requirement or eligibility standards outlined in the invitation notice, which was a reasonable and non-discriminatory one, and subsequently was not authorised to award the contract to Respondent 4, who was not qualified as per the eligibility standards. It further held that the impugned decision denied equal opportunity to others in a similar position who wanted to participate in the tender submission process.

As a result, the Hon’ble Supreme Court held that the impugned decision was violative of, firstly, the equality clause under Article 14 of the Constitution and the settled principle of administrative law to conform with the standards set forth. Consequently, the impugned decision was held to be arbitrary and invalid.

Refusal to grant relief

In spite of the fact that the Court observed that the decision of Respondent 1 to accept Respondent 4’s tender was arbitrary, it did not set aside the impugned decision considering the peculiar facts and circumstances of the case. It was noted that the contention of Respondents 1 and 4 was that the appellant was a mere stooge of A.S. Irani, whose main aim was to restrain the latter respondent from running the business and executing the contract. The Court further observed that the affidavit filed by the appellant indicated that he had no legitimate interest in the outcome of this appeal or the writ petition. Furthermore, it also took note of various other litigations that were instituted in the lower courts with the same mala fide intentions.

Besides, the Court also pondered the reason for the delay in filing the writ petition on the part of the appellant. It was noted that the appellant had filed the petition nearly 6 months after the contract was awarded to Respondent 4. It rejected the appellant’s explanation that the appellant was not aware of the impugned decision as naive. In light of these reasons, the Court observed that it had serious doubts about the bona fide intentions of the appellant.

Moreover, the Court also noted that Respondent 4 had, in the meantime, spent around Rs. 1,25,000 to give effect to the contract and run the business of restaurants and snack bars. It was observed that it would be unjust to set aside the contract at this juncture. However, the Court said that the position would have been different if the appellant had filed the writ petition immediately after the contract was awarded or if Respondent 4’s tender was accepted by Respondent 1.

Therefore, the Court refused to grant relief for the reasons discussed above.

Precedents referred to/relied upon

The Hon’ble Supreme Court noted several significant rulings in this case, including those pointed out by the respondents. Although numerous judgements were noted or pointed out as relevant to the issue in question, the Hon’ble Court stressed the following precedents and explained if the said judgements were relevant or not.

Rajasthan State Electricity Board vs. Mohanlal (1967)

This case involved the determination of whether the Rajasthan Electricity Board was an “authority” within the meaning and scope of the expression “other authorities” under Article 12 of the Constitution. The Hon’ble Apex Court in this case ruled that the aforesaid expression encompasses, within its scope, all the authorities, statutory as well as constitutional, on whom powers are conferred by law. It was also held that any authority, statutory or constitutional, could be included within the meaning and scope of the expression “other authorities” if it is entrusted with sovereign powers, i.e., the power to make rules and regulations that have the effect of law. Furthermore, it was held that such an inclusion can also be made if any deviation from the rules, regulations, or directions issued by such authority attracts a penal offence.

The Hon’ble Court in the instant case, from the ratio of the aforementioned case, extracted the test for inclusion of any corporation under the meaning of the expression “other authorities” as follows:

The Court, in the instant case, pointed out that any statutory or constitutional authority would be included under the meaning and scope of the expression “other authorities” under Article 12 if it satisfies any of the following two conditions or criteria:

Possessing statutory power to issue directions that are binding on third parties, deviations from which would attract a penal offence.
Possessing sovereign power to make rules and regulations having the effect of law.

Sukhdev Singh vs. Bhagat Ram (1975)

This was another landmark judgement concerning the interpretation of the meaning and scope of the expression “other authorities” and subsequently the meaning of “State” under Article 12 of the Constitution. The test laid down in the ruling of Rajasthan State Electricity Board vs. Mohanlal (1967) for the determination of inclusion of any corporation within the aforesaid expression was noted by the Court in this case. However, the Hon’ble Apex Court in this case set forth another test for such a determination. It was observed that any corporation would fall within the meaning of the expression “other authorities” and therefore be “State” if such a corporation is an instrumentality or agency of the government.

The Hon’ble Court, in the instant case, noted that the test laid down in the decision of Sukhdev Singh vs. Bhagat Ram (1975) was a broader and more satisfactory one to determine whether any corporation falls within the meaning of the expression “other authorities” and, as a result, is a “State” within the scope of Article 12.

Erusian Equipment and Chemicals Ltd. vs. State of West Bengal (1974)

The Hon’ble Supreme Court referred to the significant notings made in the case of Erusian Equipment and Chemicals Ltd. vs. State of West Bengal (1974). It noted the observations where the Court in that case held that equality of opportunity is equally applicable to public contracts. The Court had noted that while the State has the right to trade, it also has a duty to ensure equality. It was further observed that the State cannot reject persons leading to discrimination. Hence, the Court, in the instant case, noted that the State cannot arbitrarily enter into any kind of contractual relationship with a person or any third party. It was also noted that the decision or act of the State has to be in accordance with non-discriminatory and rational standards or norms.

Rashbihari Panda vs. State of Orissa (1969)

The Hon’ble Supreme Court noted one of the significant principles applied by its Constitution bench in the 1969 decision of Rashbihari Panda vs. State of Orissa, concerning the State’s authority to enter into or refrain from entering into a contractual relationship. It was noted that the government is entitled to reject or refuse a contractual relationship with anyone; however, it must not do so by acting arbitrarily and by choosing any person it likes or favours while discriminating against those who are in a similar position. The Court noted that the government must act in conformity with the standards and norms that satisfy the tests of reasonableness and non-discrimination. It further noted that any deviation from such norms would be invalid unless such deviation is reasonable and non-discriminatory.

Praga Tool Corporation vs. C.A. Immanuel (1969)

The first case referred to by the Hon’ble Supreme Court was the ruling of itself in Praga Tool Corporation vs. C.A. Immanuel (1969). This case involved a writ of mandamus sought by the workmen against the Praga Tool Corporation, which was a company incorporated under the Companies Act and which had 52% of its shares held by the Central Government and 32% shares held by the State Government of Andhra Pradesh. However, the Court in this instant case noted that the aforesaid case did not involve the question of whether the Praga Tool Corporation was an “authority” within the scope of Article 12. It was noted that the question involved in the aforesaid was whether a writ of mandamus could be issued against the corporation or not, and the question was answered in the negative by the Hon’ble Court since no duty was imposed on the corporation by any statute.

Heavy Engineering Mazdoor Union vs. State of Bihar (1969)

The next decision referred to was the one delivered in the case of Heavy Engineering Mazdoor Union vs. State of Bihar (1969). The State of Bihar in this case referred to an industrial dispute between the Heavy Engineering Corporation Ltd. (hereinafter referred to as the ‘Corporation’’) and the Union under Section 10 of the Industrial Disputes Act, 1947. This reference was challenged, wherein the Central Government argued that it should be them who should be referring to the dispute and not the State of Bihar, on the ground that the Corporation was working under the authority of the Central Government. This contention of the Central Government was rejected by the Court since the Corporation was carrying out its functions under the authority of its memorandum of association and articles of association.

The Court, in the instant case, pointed out that the court, by the expression “instrumentality or agency of the government,” does not refer to the corporation being an agent as in a master and servant relationship, but the expression denotes the authority or power the government holds with regard to the functioning and governing of the corporation.

S.L. Agarwal vs. General Manager, Hindustan Steel Ltd. (1969)

The Court also referred to the decision of S.L. Agarwal vs. General Manager, Hindustan Steel Ltd. (1969), in which the question was whether an assistant surgeon in Hindustan Steel Ltd. could be said to be holding a civil post under the State or Central Government for him to fall within the scope of Article 311(2). The Court answered the question in the negative since Hindustan Steel Ltd. was an independent legal entity and not any department of the government. It was affirmed in the instant case, and the Court also noted that the aforesaid case did not deal with the question of “authority” under Article 12.

Sabhajit Tiwari vs. Union of India (1975)

The Hon’ble Court referred to the ruling delivered by itself in the case of Sabhajit Tiwari vs. Union of India (1975). The case involved whether Scientific and Industrial Research was an “authority” under Article 12 of the Constitution. The Court in that case answered the question negatively and held that it was not an “authority” within the scope of Article 12 based on the functioning of the council and facts relevant in this regard. However, the Hon’ble Court in the instant case noted that the aforesaid case does not contain any discussion of features necessary for any corporation to fall within the scope of “authority” under Article 12. It was noted that the Court did not lay down any principles or guidelines for the determination or consideration of any corporation as an authority under Article 12. It further noted that the only question to be ascertained was whether any corporation was an agency of the government.

The Court ruled out the last four decisions among those discussed above as irrelevant since they dealt with issues that were not similar to those in question in the instant case. Meanwhile, it noted the first two rulings as laying down significant tests for the determination of issues that were involved in the instant case.

Additionally, the Court also noted various other significant rulings, such as the rulings in the cases of E.P. Royappa vs. State of Tamil Nadu (1973) and Maneka Gandhi vs. Union of India (1978), where it was held that the provision of equality under Article 14 prevents arbitrary actions of the state and ensures equality and fairness. Furthermore, it also noted the observations made by the Hon’ble High Court of Kerala in the case of V. Punnen Thomas vs. State of Kerala (1968), where the Court observed that a democratic government cannot prescribe inconsistent and arbitrary standards for the choice of persons with whom it intends to deal.

Analysis of R.D. Shetty vs. The International Airport Authority of India (1979)

The instant ruling is a landmark in various aspects. The Hon’ble Supreme Court of India, in this case, made several observations that hold great significance as a precedent concerning the questions of law involved in this case. In addition to deciding upon the direct question of law or challenge involved in this case, the Court proceeded to examine and ascertain the questions of law involved. It shed light on various aspects of legal importance, beginning from the maintainability of the plea to the right against arbitrariness as a part of the right to equality under Article 14 of the Constitution. The Court extensively discussed the concepts of law necessary to adjudicate the issues involved in this case and then ruled accordingly.

The Court referred to several rulings and decisions while discussing and explaining the concepts of law involved and affirmed a few of the pertinent observations made by the Courts concerning the non-arbitrariness, reasonable and non-discriminatory actions of the State, equality of opportunity, etc. It also affirmed the tests for determining the government instrumentality of any corporation, which were laid down by the Hon’ble Supreme Court in various significant decisions.

Moreover, the various observations made by the Court concerning the non-deviation of public authorities from standard norms and regulations indicated an implied affirmation of the doctrine of legitimate expectation. Even though it was not expressly discussed or mentioned in the judgement.

However, the Court ultimately, in spite of making observations upholding the contentions of the appellant, refused to grant any kind of relief to him. It noted the likely presence of ulterior or mala fide intentions or motives of the appellant for filing the writ petition. The Court subsequently, in the appeal, noted the various attempts that were made to prevent Respondent 4 from benefiting from the contract. Although it noted that the decision to award the contract to Respondent 4 was arbitrary, it also noted that the appellant had no real interest in the litigation. More significantly, the Court noted the delay in filing the writ petition, which indicated a lack of real interest. It also includes the financial investments made by Respondent 4 in the meantime to give effect to the contract. Hence, the court refused to grant the relief claimed.

To summarise, the Court in this case delivered a balanced decision where the contentions of both parties were validated to a certain extent and the other inconsistent contentions were rejected. It also has to be noted that all the parties in this case were at fault in one or another manner.

Conclusion

As mentioned earlier, it is a significant ruling considering the extensive observations made on various legal concepts of subjects laying down noteworthy precedents. This case also highlights the necessity of being equipped with legal and factual awareness of the actions of the public authorities to ensure that they are in accordance with the law, which otherwise would affect the rights of individuals. The lack of compliance of public authorities with standard norms and regulations and the lack of awareness in general often lead to disasters like the Mumbai hoarding collapse and other similar cases taking place due to the same reason. Therefore, it is firstly necessary to be legally and factually aware of the actions of the public authority, and secondly, it is important to confront or criticise the administration in cases of lack of compliance with standard rules and norms and to ensure that they do not depart from such norms.

Frequently Asked Questions (FAQs)

Which case set forth the test of instrumentality or agency of the government to determine whether any corporation falls under the meaning of “State” under Article 12?

The test of instrumentality or agency of the government was laid down in the decision of Sukhdev Singh vs. Bhagatram (1975) by the Hon’ble Supreme Court of India to determine whether any corporation falls within the meaning and definition of “State” under Article 12 of the Constitution.

Is the right against arbitrariness a fundamental right?

Yes, the right against arbitrariness has been noted as a part of the right to equality under Article 14 of the Constitution by the Hon’ble Supreme Court in E.P. Royappa vs. State of Tamil Nadu (1973).

What is the doctrine of legitimate expectation?

The doctrine of legitimate expectation refers to the principle that public authorities are expected to act in a certain specified manner or in a manner that is in accordance with the law without departing from rules, regulations, or standard norms laid down by or for such public authority. It means that the general public expects the public authorities to act in a certain manner conforming to the law, and it is legitimate for the public to have such an expectation. The principle provides that it is the duty of the public authorities not to deviate from such expectations, which are legitimate in nature.

In simple words, the public authorities are expected to work in accordance with the law and are not entitled to deviate from such a law.