PETITIONER:
HAJI T.M. HASSAN RAWTHER
Vs.
RESPONDENT:
KERALA FINANCIAL CORPORATION.
DATE OF JUDGMENT17/11/1987
BENCH:
SHETTY, K.J. (J)
BENCH:
SHETTY, K.J. (J)
RAY, B.C. (J)
CITATION:
1987 SCALE (2)1067
ACT:
Indian Contract Act, 1872: Auction-Disposal of property
by State or instrumentality of the State-Resort to private
negotiation instead of public auction justified in
compulsive situations.
Constitution of India, Article 14: Property owned by
State or instrumentality of State-sale of-Through public
auction or by inviting tenders-Action to be fair and above
board-Nothing to be done to give impression of bias,
favouritism or nepotism.
HEADNOTE:
%
The respondent, a State Government Corporation obtained
decree for certain amount against the appellant and in
execution proceedings a tea estate was brought for sale by
court auction in 1969, but in the absence of a bidder the
respondent itself had to purchase it at a higher price. The
respondent, however, could take possession of the estate
only in 1982. It then invited tenders for the sale of the
estate. The appellant offered Rs.6,00,000. The next best
offer was for Rs.4,15,550 and the third for Rs.2,07,451. The
highest offer was accepted, but the appellant could not pay
the amount except the earnest money, even after repeated
extension of time and offer to receive the balance in
instalments. The respondent then negotiated with the next
highest bidder, who enhanced the offer to Rs.4,50,000 which
was accepted by the respondent. The property, however, was
sold to a partnership firm in which the said bidder was a
partner.
The appellant thereupon moved the High Court
complaining that the respondent in selling the property to
the firm had deviated from the normal practice of inviting
the tenders from the public and that the Corporation being a
public authority was bound to act reasonably and fairly and
it ought not be have arbitrarily selected the purchaser. The
High Court declined to interfere.
Dismissing the appeal,
^
HELD: The action of the respondent in offering the
property to the person next in order by private negotiations
and selling the same at
1080
his request to the partnership firm was perfectly justified.
[1087G]
The public property owned by the State or by any
instrumentality of the State should be generally sold by
public auction or by inviting tenders, not only to get the
highest price for the property but also to ensure fairness
in the activities of the State and public authorities. They
should act fairly. Their actions should be legitimate. Their
dealings should be above board. Their transactions should be
without aversion or affection and should not be suggestive
of discrimination, bias, favouritism or nepotism. Ordinarily
these facts would be absent if the matter is brought to
public auction or sale by tenders. Though that is the
ordinary rule, it is not an invariable rule. There may be
situations necessitating departure from the rule, but then
such instances must be justified by compelling reasons and
not by just convenience. [1086H; 1087A-C]
In the instant case, the respondent dealt with the
property in all fairness. It invited tenders for the sale of
the property under the notification. The appellant submitted
the highest tender in response to the said notification. He
was granted all concessions and facilities for payment by
instalments but he failed. If the appellant could not act
according to his tender, there was no reason why the
property should not be offered to the person who was next in
order. The respondent, therefore, did not do anything unfair
with the second bidder after it had got the tender amount
raised substantially. [1087D-F]
K.N. Guruswamy v. The State of Mysore & Ors., [1955] 1
SCR 305 at 312; Mohinder Singh Gill & Anr. v. The Chief
Election Commissioner, New Delhi & Ors., [1978] 2 SCR 272;
R.D. Shetty v. The International Airport Authority of India
JUDGMENT:
State of Jammu and Kashmir & Anr., [1980] 3 SCR 1338;
Fertilizer Corporation Kamagar Union v. Union of India, AIR
1981 SC 344; Ram and Shyam Company v. State of Haryana &
Ors., [1985] Suppl. SCR 541 and Shri Sachidanand Pandey v.
State of W. B. AIR 1987 SC 1109, applied.
&
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 914 of
1987.
From the Judgment and Order dated 22.8.1984 of the
Kerala High Court in O.P. No. 6806 of 1984.
Abdul Khader and E.M.S. Anam for the Appellant.
1081
G. Vishwanath Iyer, N. Sudhakaran for the Respondent.
The Judgment of the Court was delivered by
JAGANNATHA SHETTY, J. A tea estate of 100 acres with
some buildings, machinery and equipments was given as
security to the Kerala Financial Corporation (“The
Corporation”) against the loan taken by the appellant. A
part of the loan remained outstanding and the appellant
could not clear it. The Corporation thereupon filed O.A. No.
8/64 before the District Court of Kottayam for recovery of
the arrears and obtained decree for an amount of
Rs.1,20,000. In execution of the decree, the said tea estate
was brought for sale by court auction. On November 5, 1969,
the auction sale was held. There was no bidder. So the
Corporation itself had to purchase the property for about
Rs.1,65,000. There was long standing dispute between the
workmen of the estate and the previous management relating
to payment of their wages. The Corporation therefore could
not take possession of the estate. An extent of 85 acres out
of 100 acres of the estate was in possession of the workmen
as per settlement arrived at between the Labour Commissioner
and the District Collector. The workmen used to collect the
income therefrom towards their wages. This arrangement
continued for about thirteen years. On January 7, 1982, the
Corporation got possession of the entire estate. The
Corporation wanted to recover its amount. It was not
interested in the property. It therefore, invited tenders
for the sale of the estate. On March 19, 1982, a tender
notification was published in dailies like Malayala
Manorama, Mathrubhoomi and Deepika newspapers. In response
to the notification, the daughter-in-law of the appellant
was the only tenderer. She offered Rs.5,10,505. The
Corporation accepted the tender. It was subsequently found
that the daughter-in-law was no better than the appellant.
She also could not pay any amount.
On January 18, 1983, the Corporation again invited
tenders for the sale of the property. The notification was
published in the said newspapers as it was done earlier.
This time, the Corporation received these tenders: (i) T.M.
Hassan Rawther (Appellant before us) for Rs. six lakhs; (ii)
P.M. Jacob for Rs.4,15,550 and (iii) K.K. Mathew for
Rs.2,07,451. Since the appellant submitted the highest
offer, the Corporation naturally had to accept it. On March
2, 1983, the acceptance was communicated to the appellant.
He must have thanked his stars for getting back his family
property which was so dear to him or which was according to
him so valuable. But there was no such anxiety shown. He did
not pay anthing except the earnest money of Rs.40,000.
1082
The Corporation, however, extended the time for payment
again and again. The Corporation also gave him instalments
for payment of the balance price. All the efforts of the
Corporation failed to induce the appellant.
The Corporation wanted to get back its money. It was
not interested in retaining the property. So it negotiated
with P.M. Jacob who had submitted his tender alongwith the
appellant in response to the notification dated January 18,
1983. He had then offered Rs.4,16,550. His tender was the
next best. After negotiation, he enhanced the offer to Rs.
four and a half lakhs. The Corporation accepted it and
decided to sell the property to P.M. Jacob. The property
however, was sold to M/s. Gumraj Plantations at the request
of P.M. Jacob. M/s. Gumraj Plantations is a partnership firm
in which P.M. Jacob is one of the partners.
The appellant who could not purchase the said property
by any means filed suit O.S. No. 229/84 before the Munsif
Court Thidupuzha to restrain the Corporation from selling
the property. He could not get relief in the suit since by
then the sale deed was executed in favour of M/s. Gumraj
Plantations. Subsequently, he moved the High Court of Kerala
complaining that the Corporation while selling the property
for Rs. four and a half lakhs to M/s. Gumraj Plantations,
had deviated from the normal practice of inviting tenders
from the public. He contended that the Corporation being a
public authority was bound to act reasonably and fairly and
it ought not to have arbitrarily selected the purchaser. The
High Court found no substance in those submissions. The High
Court observed:
“The submission made by the petitioner’s
counsel is that the decision to sell the property
by private negotiations is arbitrary and is
therefore liable to be interfered with by this
court. This is clearly a case where in execution
proceedings the decreeholder has purchased the
property and thereafter the property was sold in
public auction to the petitioner, who purchased it
for Rs. six lakhs but failed to pay the sale
amount in spite of the fact that this court and
afterwards the corporation had shown great
indulgence towards the petitioner. This is not at
all a fit case for interference under Art. 226 of
the Constitution.”
Being aggrieved by the judgment of the High Court, the
appellant has preferred the present appeal. On May 18, 1985,
this Court
1083
while entertaining the appeal issued notice limited to the
question whether the sale of the property should be made by
general auction. This Court further directed that in any
event, the appellant will not be allowed to participate in
the auction.
Very interesting turn of events. The appellant who
miserably failed to secure the property for himself is now
interested in securing the best price for the Corporation.
He says that this is a public interest litigation. His case
is that the Corporation in all fairness must dispose of the
property by public auction. It could not have bargained with
P.M. Jacob and sold the property to M/s. Gumraj Plantations.
Before the High Court, the appellant attacked the sale
also on the ground that it was actuated by extraneous
considerations. He alleged that the corporation had
succumbed to the pressure of some influential persons for
the sale of the property in favour of M/s. Gumraj
Plantations. The appellant made these allegations but did
not substantiate it. He did not give the names of
influential persons who had brought pressure on the
Corporation. He did not even state as to how the Corporation
officials had shown undue interest with P.M. Jacob or with
the other partners of M/s. Gumraj Plantations for sale of
the property. It is not proper to make such light hearted
and vague allegations against the statutory authorities.
These allegations, in our opinion, are uncharitable and
unfounded.
The only question that arises for consideration is
whether on the facts and in the circumstances, the
Corporation was not justified in selling the property by
private negotiations in favour of M/s. Gumraj Plantations at
the instance of P.M. Jacob. It is needless to state that the
Government or public authorities should make all attempts to
obtain the best available price while disposing of public
properties. They should not generally enter into private
arrangements for the purpose. These principles may be taken
as well established by the following decisions of this
Court: (i) K.N. Guruswamy v. The State of Mysore and others,
[1955] 1 SCR 305 at 312; (ii) Mohinder Singh Gill & Anr. v.
The Chief Election Commissioner, New Delhi and others,
[1978] 2 SCR 272; (iii) R.D. Shetty v. The International
Airport Authority of India and Ors., [1979] 3 SCR 1014; (iv)
Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir and
Anr., [1980] 3 SCR 1338; (v) Fertilizer Corporation Kamagar
Union v. Union of India, AIR 1981 SC 344; (vi) Ram and Shyam
Company v. State of Haryana and Ors. [1985] Supp. SCR 541
and (vii) Shri Sachidanand Pandey v. State of W.B. AIR 1987
SC 1109.
1084
In R.D. Shetty v. The International Airport Authority
of India and Ors. [1979] 3 SCR 1014 at 1041 Bhagwati, J.
speaking for the Court observed:
“Now, obviously where a corporation is an
instrumentality or agency of Government, it would,
in the exercise of its power or discretion, be
subject to the same constitutional or public law
limitations as Government. The rule inhibiting
arbitrary action by Government which we have
discussed above must apply equally where such
corporation is dealing with the public, whether by
way of giving jobs or entering into contracts or
otherwise, and it cannot act arbitrarily and enter
into relationship with any person it likes at its
sweetwill, but its action must be in conformity
with some principle which meets the test of reason
and relevance.
This rule also flows directly from the
doctrine of equality embodied in Art 14. It is now
well settled as a result of the decisions of this
Court in E.P. Rayappa v. State of Tamil Nadu and
Maneka Gandhi v. Union of India that Article 14
strikes at arbitrariness in State action and
ensures fairness and equality of treatment. It
requires that State action must not be arbitrary
but must be based on some rational and relevant
principle which is non-discriminatory: it must not
be guided by any extraneous or irrelevant
considerations, because that would be denial of
equality. The principle of reasonableness and
rationality which is legally as well as
philosophically an essential element of equality
or non-arbitrariness is protected by Art. 14 and
it must characterise every State action, whether
it be under authority of law or in exercise of
executive power without making of law. The State
cannot, therefore, act arbitrarily in entering
into relationship, contractual or otherwise with a
third party, but its action must conform to some
standard or norm which is rational and non-
discriminatory.”
In Kasturi Lal Lakshmi Reddy v. State of J & K, [1980]
3 SCR 1338 at 1355 Bhagwati, J. again speaking for the Court
reiterated what he said earlier to R.D. Shetty case. The
learned Judge went on to state:
1085
“Every action taken by the Government must be
in public interest; the Government cannot act
arbitrarily and without reason and if it does, its
action would be liable to be invalidated. If the
Government awards a contract or leases out or
otherwise deals with its property or grants any
other largess, it would be liable to be tested for
its validity on the touch-stone of reasonableness
and public interest and if it fails to satisfy
either test, it would be unconstitutional and
invalid.”
The learned Judge continued (at p. 1357):
“But one basic principle which must guide the
Court in arriving at its determination on this
question is that there is always a presumption
that the Governmental action is reasonable and in
public interest and it is for the party
challenging its validity to show that it is
wanting in reasonableness or is not informed with
public interest. This burden is a heavy one and it
has to be discharged to the satisfaction of the
Court by proper and adequate material. The Court
cannot lightly assume that the action taken by the
Government is unreasonable or without public
interest because as we said above, there are a
large number of policy considerations which must
necessarily weigh with the Government in taking
action and therefore, the Court would not strike
down governmental action as invalid on this
ground, unless it is clearly satisfied that the
action is unreasonable or not in public interest.
But where it is so satisfied it would be the
plainest duty of the Court under the Constitution
to invalidate the governmental action. This is one
of the most important functions of the Court and
also one of the most essential for preservation of
the rule of law.”
In Fertilizer Corporation case (AIR 1981 SC 344 at 350
this Court speaking through Chandrachud, C.J., observed:
“We want to make it clear that we do not
doubt the bona fides of the authorities, but as
far as possible, sales of public property, when
the intention is to get the best price, ought to
take place publicly. The vendors are not
necessarily bound to accept the highest or any
other offer, but the public at least gets the
satisfaction that the Government has
1086
put all its cards on the table. In the instant
case, the officers who were concerned with the
sale have inevitably, though unjustifiably
attracted the criticism that during the course of
negotiations the original bid was reduced without
a justifying cause. We had willy-nilly to spend
quite some valuable time in satisfying ourselves
that the reduction in the price was a necessary
and fair consequence of the reduction in the
quantity of the goods later offered for sale on
March 31, 1980. One cannot exclude the possibility
that a better price might have been realised in a
fresh public auction but such possibilities cannot
vitiate the sale or justify the allegations of
malafides.”
In Shri Sachidanand Pandey v. State of West Bengal, AIR
1987 SC 1109 at 1133, O. Chinnappa Reddy, J. after
considering almost all the decisions of this Court on the
subject summarised the propositions in the following terms:
“On a consideration of the relevant cases
cited at the bar the following propositions may be
taken as well established: State owned or public
owned property is not to be dealt with at the
absolute discretion of the executive. Certain
percepts and principes have to be observed. Public
interest is the paramount consideration. One of
the methods of securing the public interest when
it is considered necessary to dispose of a
property, is to sell the property by public
auction or by inviting tenders. Though that is the
ordinary rule, it is not an invariable rule. There
may be situations where there are compelling
reasons necessitating departure from the rule but
then the reasons for the departure must be
rational and should not be suggestive of
discrimination. Appearance of public justice is as
important as doing justice. Nothing should be done
which gives an appearance of bias, jobbery or
nepotism.”
After applying these tests, the learned Judge finally
upheld the action of West Bengal Government in not inviting
tenders, or in not holding a public auction but negotiating
straightway at arms length with Taj Group of Hotels for
giving about four acres of land for establishing a five star
hotel.
The public property owned by the State or by any
instrumentality of the State should be generally sold by
public auction or by inviting
1087
tenders. This Court has been insisting upon that rule, not
only to get the highest price for the property but also to
ensure fairness in the activities of the State and public
authorities. They should undoubtedly act fairly. Their
actions should be legitimate. Their dealings should be above
board. Their transactions should be without aversion or
affection. Nothing should be suggestive of discrimination.
Nothing should be done by them which gives an impression of
bias, favouritism or nepotism. Ordinarily these factors
would be absent if the matter is brought to public auction
or sale by tenders. That is why the Court repeatedly stated
and reiterated that the State owned properties are required
to be disposed of publicly. But that is not the only rule.
As O.Chinnappa Reddy, J. Observed “that though that is the
ordinary rule, it is not an invariable rule.” There may be
situations necessitating departure from the rule, but then
such instances must be justified by compulsions and not by
compromise. It must be justified by compelling reasons and
not by just convenience.
What is the position in the present case. Here is a
case where the Corporation invited tenders for the sale of
the property under notification dated January 18, 1983. The
appellant submitted the highest tender in response to the
said notification. He was given all concessions for payment
of the tender amount. But he did not. He negotiated with the
Managing Director of the Corporation for facilities for
payment by instalments. That was also granted to him. There
again he failed. If the appellant could not act according to
his tender, we fail to see why the property should not be
offered to the person who was next in order. The
Corporation, in our opinion, did not do anything unfair with
P.M.Jacob. The Corporation got the tender amount raised from
Rs.4,16,550 to Rs.4,50,000. It shows the fairness with which
the Corporation dealt with the property.
On a consideration of all the facts and circumstances
of the case, we are satisfied that the action of the
Corporation in offering the property to P.M.Jacob and
selling the same at his request to M/s. Gumraj Plantations
was perfectly justified and cannot be found fault with
In the result the appeal fails and is dismissed. In the
circumstances, however, we make no order as to costs.
P.S.S. Appeal dismissed.
1088