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PETITIONER:

STERLING COMPUTERS LIMITED ETC.

Vs.

RESPONDENT:

M & N PUBLICATIONS LIMITED AND ORS.

DATE OF JUDGMENT12/01/1993

BENCH:

SINGH N.P. (J)

BENCH:

SINGH N.P. (J)

KASLIWAL, N.M. (J)

CITATION:

1996 AIR 51 1993 SCR (1) 81

1993 SCC (1) 445 JT 1993 (1) 187

1993 SCALE (1)36

ACT:

Constitution of India : Articles 12, 14, 19, 32, 136, 226

and 298.

Government contracts--Judicial review--Court primarily

concerned with infirmity in decision making process--Urgency

of disposal by courts of such matters--Necessity for.

Telephone directories--Publication of--Contract termed

'supplemental contract' granted--Held amounted to grant of

fresh contract in garb of 'supplemental contract'.

HEADNOTE:

The three appeals arose out of disputes relating to the

publication of telephone directories of MTNL a Government of

India Undertaking. The MTNL introduced a new concept of

"yellow pages' in telephone directories, and these yellow

pages were to contain advertisement under different

headings. The contractor who was to be awarded the contract

for printing such directories was to collect the revenue

from the advertisements in the yellow pages as well as in

the white pages of the telephone directory, supply the same

free of cost to the for its subscribers, and pay royalty to

the MTNL in connection with printing of such directories.

Tenders for publication of the directories for Delhi and

Bombay were invited. Tender of UIP respondent No. 2 in the

Writ Petition and appellant in one of the appeals (CA.No. 91

of 1993) was accepted, and an agreement dated 14th March,

1987 was executed. UDI, respondent No. 3 to the Writ

Petition and appellant in one of the other appeals (CA No.

90, of 1993) was a subsidiary of UIP.

Under the original agreement UIP was to publish directories

every year for a period of five years from 1987 to 1991 for

Delhi and Bombay separately, pay an amount of Rs. 20.16

crores as royalty to the MTNL, supply the directories free

of cost to subscribers. UIP also furnished a

82 `

performance guarantee for a sum of Rs. one crore, and was

also to supply the same number of supplementary directories

which were to be published six months after the publication

of the annual issue, to be published in November/December

every year. UIP was given the exclusive right for

procurement of the advertisements in the yellow pages as

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well as strips, bold the extra entries in the white pages,

the rates to be fixed by the UIP for each issue of the

directory, and such rates to be printed for general

information. It was stipulated that if UIP committed

default or breach of the agreement or failed in the due

performance thereof, the MTNL shall be entitled to recover

from the UIP by way of compensation or liquidated damages

and amount calculated at the rate of Rs. One lakh for every

day or part thereof for the delay beyond the stipulated

date. The MTNL without prejudice to other rights could by

notice in writing determine the contract.

UIP defaulted and committed breach of the agreement inasmuch

as directories for Delhi were published only for the years

1987 and 1988 and for Bombay only for the year 1987. For

the year 1987, Delhi issue was published after a delay of

seven months and Bombay issue after six months, and the

Delhi issue of 1988 was published only in August, 1990, a

delay of two years. There was no publication of the

directories for Delhi for the years 1989, 1990 and 1991, and

in respect of Bombay for the years 1988, 1989, 1990 and

1991.

A supplemental agreement was entered on 26th September, 1991

between UIP, UDI, MTNL and Sterling Computers Limited

appellant in one of the appeals (CA. No. 89 of 1993).

Sterling by this agreement was introduced to carry out the

unexecuted portion of the agreement with UIP. By this

supplemental agreement Sterling was to print and publish 13

main issues of Delhi and Bombay directories within a period

of seven years including the year 1991 on payment of

additional royalty of only Rs. 10 crores to the MTNL over

and above the royalty stipulated in the original agreement

by the UIP.

Under the agreement dated 14th March, 1987 the royalty which

was payable was Rs. 20.16 crores for the period 1987 to

1991, but under the supplemental agreement Sterling was

given the contract to publish 13 main issues of the Delhi

and Bombay directories upto 1997 and 1998, but for the

extended period it had to pay royalty only for an amount of

Rs. 10

83

crores.

A Writ Petition was flied questioning the validity and

legality of the supplemental agreement on different grounds

including the ground of mala fide. It was contended by the

petitioners that under the grab of a supplemental agreement

a fresh contract was awarded to Sterling for a fresh period

from 1991 to 1997 on fresh terms and conditions to publish

the directories every year for Delhi and Bombay without

inviting tenders or affording an opportunity to others, to

submit tenders so that they may be also considered for award

of the said contract. It was asserted by the petitioners

that in the process of entering into the supplemental agree-

ment the MTNL, which is a public undertaking and a "State'

within the meaning of Article 12 of the constitution, had

suffered a loss of more than Rs. 60 crores without any

corresponding benefit accruing to the MTNL or to the public

in general.

MTNL contested the writ petition, contending that the

supplemental agreement was a result of a bona fide

commercial decision free from any bias or malice, that the

original contract for the years 1987 to 1991 had been

awarded to UIP after inviting tenders, but UIP having gone

bankrupt, no money could have been realised from it. The

termination of the original contract was no remedy although

repeated contraventions and breaches had been committed by

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the UIP inasmuch as there was no publication of directory

for Bombay for the years 1988, 1989, 1990 and 1991 and for

Delhi for the years 1989, 1990 and 1991. In order to

salvage Rs. 20.16 crores which was payable to the MTNL under

the original agreement dated 14th March, 1987 by the UIP and

which had not been paid, a decision was taken by the MTNL to

enter into a supplemental agreement and to allow the

UIP/UNI/Sterling to publish the thirteen issues of

directories, six main issues for Delhi and seven main issues

for Bombay upto years 1997-98 apart from the supplementary

directories.

The High Court allowed the writ petitions, and came to the

conclusion that the supplemental agreement dated 26th

September, 1991 cannot be held to be an extension of the

original agreement dated 14th March, 1987, and that the

supplemental agreement was tainted with malice the object

being to provide unjust enrichment to UIP/UDI/Sterling.

In the appeals to this Court, it was contended on behalf of

the

84

appellants that the supplemental agreement was entered into

by the MTNL taking into consideration the circumstances then

existing which had been examined at the highest level and as

such a Court should not examine the discretion exercised by

the public authority as a court of appeal because the

decision to enter into the supplemental agreement also

involved a question of policy, and it was pointed out that

the contract had been awarded in the year 1987 to UIP on an

experimental basis on such terms and conditions on which in

past directories had not ever been published, and that the

real experiment was as to how the directories' could be

published without incurring any cost by MTNL.

On behalf of the Writ Petitioners it was stated that they

were prepared to pay to the MTNL an amount of Rs. 60 crores

for the period 1991 to 1997/1998 the period covered by the

supplemental agreement for which the UIP/(JDI/Sterling have

undertaken to pay only Rs. 10 crores as royalty.

Dismissing the appeals, this court

HELD:1. Ile publication of directories by the MTNL is

not just a commercial venture, the primary object is to

provide service to the people. [92F]

2.The norms and procedures prescribed by Government and

indicated by Courts have to be more strictly followed while

awarding contracts which have along with a commercial

element a public purpose. [92F]

3.The action or the procedure adopted by the authorities

which can be held to be a 'State' within the meaning of

Article 12 of the Constitution, while awarding contracts in

respect of properties belonging to the state can be judged

and tested in the light of Article 14 of the Constitution.

Raman Davaram Shelly v. 7he International Airport Authority

of India,' AIR 1979 SC 1628; M/s. Kasturi Lal Lakshmi Reddy

v. The State of Jammu and Kashmir, AIR 1980 SC 1992;

Fertilizer Corporation Kamgar Union (Regd) Sindri v. Union

of India, AIR 1981 SC 344; Ram and Shyam Company v. State of

Haryana, AIR 1985 SC 1147; Haji T.M. Hasan Rawther v. Kerala

Financial Corporation, AIR 1988 SC 157; Mahabir Auto Stores

v. Indian Oil Corporation, AIR 1990 SC 1031 and Kumari

Shrilekha Vidyarthi v. State of U.P., AIR 1991 SC 537,

referred to. [92-H-93-A]

4. Public authorities, at times It Is said must have the

same liberty

85

as they have in framing the policies, even while entering

into contracts because many contracts amount to

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implementation or projection of policies of the Government.

But it cannot be overlooked that unlike policies, contracts

are legally binding commitments and they commit the

authority which may be held to be a State within the meaning

of Article 12 of the Constitution In many cases for years.

That is why the courts have impressed that even in

contractual matters the public authority should not have

unfettered discretion. [91G-H, 92A]

5.In contracts having commercial elements, some more

discretion has to be conceded to the authorities so that

they may enter into contracts with persons, keeping an eye

on the augmentation of the revenue But even in such matters

they have to follow the norms recognised by courts while

dealing with public property. [92B]

6.Under some special circumstances a discretion has to be

conceded to the authorities who have to enter into contract

giving them liberty to assess the overall situation for

purposes of taking a decision its to whom the contract is to

be awarded and at what terms. If the decisions have been

taken in bone fide manner although not strictly following

the norms laid down by the Courts, such decisions are

upheld. [92C]

7.Public authorities are essentially different from those

of private persons. Even while taking decision in

respect of commercial transactions a publicauthority must

be guided by relevant considerations and not by irrelevant

ones. If such decision is influenced by extraneous

considerations which it ought not to have been taken into

account the ultimate decision is bound to be vitiated, even

if it is established that such decision had been taken

without bias. [102H, 103A]

8.While exercising the power of judicial review, in

respect of contracts entered into on behalf of the State,

the Court is concerned primarily as to whether there has

been any infirmity in the 'decision making process'. By way

of judicial review the Court cannot examine the details of

the terms of the contract which have been entered into by

the public bodies or the state. Courts have inherent

limitations on the scope of any such enquiry. But the

Courts can certainly examine whether "decision making

process' was reasonable, rational, not arbitrary and

violative of Article 14 of the Constitution. [95C-E-F]

86

Chief Constable of the North Wales Police v. Evans, [1982] 3

All ER 141, referred to.

9.In the facts and the circumstances of the instant case,

it has to be held that the MTNL has applied the "irrelevant

considerations' doctrine while granting a fresh contract for

a period of five years through the supplemental agreement

dated 26th September, 1991, because it had failed to take

into account considerations which were necessarily relevant

ie. following the rule of inviting tenders while granting

the contract for a further period of five years on fresh

terms and conditions and had taken into account irrelevant

considerations. [101H, 102A]

10.Philanthropy is no part of the management of an

undertaking, while dealing with a contractor entrusted with

the execution of a contract.'[102F]

11.The supply of the directories to public in time, was a

public service which was being affected by the liberal

attitude of the MTNL and due to the condonation of delay on

the part of the UIP/UDI. There was no justification on the

part of the MTNL to become benevolent by entering into the

supplemental agreement with no apparent benefit to the

without inviting fresh tenders from intending persons to

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perform the some job for the next five years. [102G]

12.The supplemental agreement is really a fresh agreement

with fresh terms and, conditions which has been entered by

MTNL without inviting any tender for the same. It has been

entered to benefit the parties who are admittedly defaulters

by not publishing directories for Bombay for the years 1988-

1991, and for Delhi for the years 1989-1991 although they

had collected several crores or Rupees for the

advertisements for the directories to be published in the

aforesaid years. [103D-E]

13.It is a matter of common experience that whenever

applications relating to awarding of contracts are

entertained for judicial review of the administrative

action, such applications remain pending for months and in

some cases for years. Because of the interim orders passed

in such applications, the very execution of the contracts,

are kept in abeyance. The cost of different projects keep

on escalating with passage of time apart from the fact that

the completion of the project itself Is deferred. This

process not only affects the public exchequer but even the

public In general

87

who are deprived of availing the facilities under different

projects. As such, it need not be impressed that while

exercising the power of judicial review in connection with

contractual obligations, Courts should be conscious of the

urgency of the disposal of such matters, otherwise the power

which is to be exercised in the interest of the public and

for public good in some cases become counter- productive by

causing injury to the public in general. [106AB]

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 89-91 of

1993.

From the Judgment and Order dated 30.9.1992 of the Delhi

High Court in W.P. No. 1872 of 1992.

K Parsaran, Kapil Sibal, L.P. Agarwalla, N.P. Agarwalla,

Anil Agarwalia, Gopal Subramanium, Fazal-ul-Quaidir, P.H.

Parekh, Ms. Nina Gupta and Vineet Kumar for the Appellant.

K.K. Venugopal, P. Chidambaram, Anil P. Diwan, Harish N.

Salve, Vijay Narain, P.P. Tripathi and P.P. Singh for the

Respondents.

R.N. Keshwani for the Intervener.

The following Judgment of the Court was delivered by

N.P. SINGH. J. Leave granted.

Three appeals have been filed against the same judgment of

the High Court by which the Writ Petition filed on behalf of

the petitioners/respondents (hereinafter referred to as "the

writ-petitioners") was allowed. The dispute relates to the

publication of the telephone directories of Mahanagar

Telephone Nigam Limited, a Government of India Undertaking

(hereinafter referred to as "the MTNL").

A new concept of yellow pages in the telephone directories

was introduced by the MTNL/Department of Telecommunications.

The yellow pages were to contain advertisements under

different headings. The contractor who was to be awarded

the contract for printing such directories was to collect

the revenue from the advertisements in the yellow pages as

well as in white pages of the telephone directory. The

contractor was to print the directories and supply the same

free of cost to the MTNL for its

88

subscribers and had to pay royalty to the MTNL in connection

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with printing of such directories.

Tenders for publication of the directories for Delhi and

Bombay were invited. Tender of the United India Periodicals

Pvt. Ltd. (hereinafter referred to as 'the UlP, the 2nd

respondent to the Writ Petition and appellant in one of the

appeals) was accepted and an agreement dated 14th March,

1987 was executed. United Database (India) Pvt. Ltd.

(hereinafter referred to as 'the UDI', the 3rd respondent to

the Writ Petition and appellant in one of the appeals) is a

subsidiary of UIP. Under the original agreement UIP was to

publish directories every year for a period of five years

from 1987 to 1991 for Delhi and Bombay separately and was to

payan amount of Rs. 20.16 crores as royalty to the MTNL and

to supply the MTNL directories free of cost with reference

to the number of subscribers. UIP also furnished a

performance guarantee for a sum of Rs. one crore. UIP was

also to supply the same number of supplementary directories

which were to be published six months after the publication

of the annual issue. The annual issue of the directory was

to be published in November/December every year. UIP was

given the exclusive right for procurement of the

advertisements in the yellow pages as well as strips, bold

and extra entries in the white pages. The rates of such

advertisements were to be fixed by the UIP for each issue of

the directory and such rates had to be printed for general

information. It was also stipulated that if UIP committed

any default or breach of the terms and conditions of the

agreement or failed in the due performance thereof within

the time fixed (which was the essence of the contract), the

MTNL shall be entitled to recover from the UIP by way of

compensation or liquidated damages an amount calculated at

the rate of Rs. one lakh for every day or part thereof for

the delay beyond the stipulated date in respect of the item

which was not completed or finished and delivered completely

to the MTNL on the stipulated date as mentioned in the

contract. In view of clause 22 of the agreement, the MTNL

without prejudice to other rights could by notice in writing

determine the contract.

It is an admitted position that UIP defaulted and committed

breach of the terms of the agreement inasmuch as directories

for Delhi were published only for the years 1987 and 1988

and for Bombay only for the year 1987. For the year 1987,

Delhi issue was published after a delay of

89

seven months and that of Bombay after six months. So far

Delhi issue of the directory for the year 1988 is concerned,

it was published only in August, 1990 after a delay of two

years. Under the agreement UIP was to publish directories

every year for Delhi and Bombay separately during the period

of contract from 1987 to 1991. They were also required to

publish supplementary directory each year for Delhi as well

as Bombay. But there was no publication of directories for

Delhi- for the years 1989, 1990 and 1991. Similarly there

was no publication of directories in respect of Bombay for

the years 1988, 1989, 1990 and 1991.

On 26th September, 1991 a supplemental agreement was entered

between UIP, UDI, MTNL and Sterling Computers Ltd.

(hereinafter referred to as "Sterline" appellant in one of

the appeals). Sterling by this agreement was introduced to

carry out the unexecuted portion of the agreement with UIP.

It may be mentioned that by this date the period of the

original agreement dated 14th March, 1987 between the MTNL

and the UIP had expired, still the supplemental agreement

states that "subject to UIP/UDI and Sterling successfully

completing the unexecuted job relating to printing of Bombay

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and Delhi telephone directories within the stipulated time

frame and other stipulations in the agreement MTNL shall

extend the original contract for three more issues each for

Delhi and Bombay, i.e., seven main issues of Bombay and six

main issues of Delhi of the said directories to be brought

out hereafter". The agreement further stipulated that all

terms and conditions contained in the original agreement and

the memorandum of understanding would be the integral part

of the supplemental agreement and all obligations of UIP/UDI

and rights and privileges and powers provided for MTNL

thereunder and under the law shall be applicable and

available to and binding on the parties to the supplemental

agreement as if the same were the part of the supplemental

agreement. It was also said that if there was any

inconsistency or contradictions vis-a-vis the original

agreement, the memorandum of understanding read with

supplemental agreement shall prevail and would have

overriding effect. By the supplemental agreement Sterling

was to print and publish 13 main issues of Delhi and Bombay

directories within a period of seven years including the

year 1991 on payment of additional royalty of only Rs. 10

crores to the MTNL over and above the royalty stipulated in

the original agreement by the UIP. As mentioned above the

original royalty which was payable under the agreement dated

14th March, 1987 was Rs. 20.16 crores for the period 1987 to

1991 but under the supplemental agreement Sterling

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was given the contract to publish 13 main issues of the

Delhi and Bombay directories upto 1997 and 1998, but for the

extended period it had to pay royalty only for an amount of

Rs. 10 crores. It was left to the UIP/UDI to receive all

revenue earnings on account (cast and future) from the

advertisements and MTNL was to be only informed about the

prices as fixed.

The Writ Petition aforesaid was filed questioning the

validity and legality of the supplemental agreement on

different grounds including on ground of mala fide.

According to the writ-petitioners under the garb of a

supplemental agreement a fresh contract was awarded to

Sterling for a fresh period from 1991 to 1997 on fresh terms

and conditions to publish the directories every year for

Delhi and Bombay without inviting tenders or affording an

opportunity to others, to submit tenders so that they may be

also considered for award of the said contract. It was

asserted by the petitioners that in the process of entering

into the supplemental agreement the MTNL, which is a public

undertaking and a State within the meaning of Article 12 of

the Constitution, has suffered a loss of more than Rs. 60

crores without any corresponding benefit accruing to the

MTNL or to the public in general.

Before the High Court the stand of the MTNL was that the

supplemental agreement was a result of a bonafide commercial

decision free from any bris or malice. The original

contract for years 1987 to 1991 had been awarded to UIP

after inviting tenders but UIP, having gone bankrupt, no

money could have been realised from it. The termination of

original contract was no remedy although repeated

contraventions and breaches had been committed by the UIP

inasmuch as there was no publication of directory for Bombay

for the years 1988, 1989, 1990 and 1991 and for Delhi for

the years 1989, 1990 and 1991. It was stated on behalf of

the MTNL before the High Court that in order to salvage Rs.

20.16 crores which was payable to the MTNL under the

original agreement dated 14th March, 1987 by the UIP and

which had not been paid, a decision was taken by the MTNL to

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enter into a supplemental agreement and to allow the

UIP/UDI/Sterling to publish the thirteen issues of

directories, six main issues for Delhi and seven main issues

for Bombay upto years 1997-98 apart from the supplementary

directories.

The High Court came to the conclusion that supplemental

agreement dated 26th September, 1991 cannot be held to be

the extension of the

91

original agreement dated 14th March, 1987. According to the

High Court the supplemental agreement was tainted with

malice-the object being to provide unjust enrichment to

UIP/UDI/Sterling.

The most interesting part of the controversy is that the

MTNL having fully supported the supplemental agreement

before the High Court has filed an affidavit before this

Court saying that "MTNL has decided to accept the High Court

judgment in so far as that the procedure for the grant of

contract dated 26.9.1991 to the petitioner M/s Sterling

Computers Ltd. Was not in keeping with the requirement of

Article 14 of the Constitution and is not filing any

petition for Special Leave against the said judgment.

However, as far as aspersions are concerned, MTNL does not

accept the same and the same are matters of investigation

and enquiry by an independent Central Agency at present." It

has been further stated that subsequent events have shown

that the Sterling has collected Rs. 19.59 crores

approximately for advertisements in yellow pages without

delivering the goods. They have also uncashed the letter of

credit issued by the 'MTNL' prematurely. This collection is

apart from the collection of Rs. 14 crores against the

yellow pages advertisements made by UDI and UIP during the

years 1987-1991. It has been further stated that the Board

of 'MTNL' had in fact even decided to terminate the contract

for lapse in the performance of the obligations under the

26th September, 1991 agreement but as the High Court has

quashed the said supplemental agreement no further step was

considered necessary. Ultimately it has been said in the

said affidavit that MTNL' has started the process for

inviting fresh public tenders and for that purpose

advertisement has already been issued.

Mr. Venugopal, appearing for the writ-petitioners before us,

stated on behalf of the writ-petitioners that they are

prepared to pay to the 'MTNL' an amount of Rs. 60 crores for

the period 1991 to 1997/1998 the period covered by the

supplemental agreement for which the UIP/UDI/ Sterling have

undertaken to pay only Rs. 10 crores as royalty.

At times it is said that public authorities must have the

same liberty as they have in framing the policies, even

while entering into contracts because many contracts amount

to implementation or projection of policies of the

Government. But it cannot be overlooked that unlike

policies, contracts are legally binding commitments and they

commit the authority which may be held to be a State within

the meaning of Article 12 of the

92

Constitution in many cases for years. That is why the

Courts have impressed that even in contractual matters the

public authority should not have unfettered discretion. In

contracts having commercial element, some more discretion

has to be conceded to the authorities so that they may enter

into contracts with persons, keeping an eye on the

augmentation of the revenue. But even in such matters they

have to follow the norms recognised by Courts while dealing

with public property. It is not possible for Courts to

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question and adjudicate every decision taken by an

authority, because many of the Government Undertakings which

in due course have acquired the monopolist position in

matters of sale and purchase of products and with so many

ventures in hand, they can come out with a plea that it is

not always possible to act like a quasi judicial authority

while awarding contracts. Under some special circumstances

a discretion has to be conceded to the authorities who have

to enter into contract giving them liberty to assess the

overall situation for purpose of taking a decision as to

whom the contract be awarded and at what terms. If the

decisions have been taken in bona fide manner although not

strictly following the norms laid down by the courts, such

decisions are upheld on the principle laid down by justice

Holmes, that Courts while judging the constitutional

validity of executive decisions must grant certain measure

of freedom of "play in the joints" to the executive.

But in normal course some rules must exist to regulate the

selection of persons for awarding contracts. In such

matters always a defence cannot be entertained that contract

has been awarded without observing the well settled norms

and rules prescribed, on basis of the doctrine of "executive

necessity". The norms and procedures prescribed by

Government and indicated by Courts have to be more strictly

followed while awarding contracts which have along with a

commercial element a public purpose as in the present case.

The publication of directories by the MTNL is not just a

commercial venture; the primary object is to provide service

to the people.

The action or the procedure adopted by the authorities which

can be held to be State within the meaning of Article 12 of

the Constitution, while awarding contracts in respect of

properties belonging to the State can be judged and tested

in the light of Article 14 of the Constitution, is settled

by the judgments of this court in the cases of Raman Dayaram

Shetty v. The International Airport Authority of India, AIR

1979 SC 1628; M/s. Kasturi

93

Lal Lakshmi Reddy v. The State of Jammu & kashmir, AIR 1980

SC 1992; Fertilizer Corporation Kamagar Union (Regd.) Sindri

v. Union of India, AIR 1981 SC 344; Ram and Shyam Company v.

State of Haryana, AIR 1985 SC 1147; Haji T.M. Hasan Rawther

v. Kerala Financial Corporation, AIR 1988 SC 157; Mahabir

Auto Stores v. Indian Oil Corporation, AIR 1990 SC 1031 and

Kumari Shrilekha Vidyarthi v. State of U.P., AIR 1991 SC

537. it has been said by this Court :-

"It must follow as a necessary corollary from

this proposition that the Government cannot

act in a manner which would benefit a private

party at the cost of the State: such an action

would be both unreasonable and contrary to

public interest. The Government, therefore,

cannot for example give a contract or sell or

lease out its property for a consideration

less than the highest that can be obtained for

it, unless of course there are other

considerations which render it reasonable and

in public interest to do so."

[M/s. Kasturi Lal Lakshmi Reddy v. The State

of Jammu & Kashmir.]

There is nothing paradoxical in imposing legal limits on

such authorities by Courts even in contractual matters

because the whole conception of unfettered discretion is

inappropriate to a public authority, who is expected to

exercise such powers only for public good.

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According to the appellants, the supplemental agreement was

entered into by the MTNL taking into consideration the

circumstances then existing which had been examined at the

highest level and as such a Court should not examine the

discretion exercised by the public authority as a court of

appeal because the decision to enter into supplemental

agreement also involved a question of policy. It was

pointed out that the contract had been awarded in the year

1987 to UIP on an experimental basis on such terms and

conditions on which in past directories had not ever been

published. The real experiment was as to how the

directories could be published without incurring any cost by

the MTNL. The publisher being given the right not only to

reimburse itself from the advertisements published in the

yellow and white pages but was also to pay royalty to the

MTNL. It was further pointed out that from the resolutions

of the MTNL. It shall appear that the authorities 'were

concerned that the experiment

94

aforesaid must succeed. With that object in view, another

opportunity was given to UIP/UDI/Sterling through the

supplemental agreement to publish the directories for Delhi

and Bombay. That decision should not be examined by this

Court like a court of appeal.

It is true that by way of judicial review the Court is not

expected to act as a court of appeal while examining an

administrative decision and to record a finding whether such

decision could have been taken otherwise in the facts and

circumstances of the case. In the book Administrative Law,

Prof. Wade has said:

"The doctrine that powers must be exercised

reasonably has to be reconciled with the no

less important doctrine that the court must

not usurp the discretion of the public

authority which parliament appointed to take

the decision. Within the bounds of legal

reasonableness is the area in which the

deciding authority has genuinely free

discretion. If it passes those bounds, it

acts ultra vires. The court must therefore

resist the temptation to draw the bounds

too tightly, merely according to its own

opinion. It must strive to apply an objective

standard which leaves to the deciding

authority the full range of choices which

legislature is presumed to have intended. The

decisions which are extravagant or capricious

cannot be legitimate. But if the decision is

within the confines of reasonableness, it is

no part of the court's function to look

further into its merits. With the question

whether a particular policy is wise or foolish

the court is not concerned; it can only

interfere if to pursue it is beyond the powers

of the authority."

But in the same book Prof. Wade has also

said:-

"The powers of public authorities are

therefore 'essentially different from those of

private persons. A man making his will may,

subject to any rights of the dependents,

dispose of his property just as he may wish.

He may act out of malice or a spirit of

revenge, but in law this does not affect his

exercise of his power. In the same way a

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private person has an absolute power to allow

whom he likes to use his land, to release a

debtor, or, where the law permits, to evict a

tenant, regardless of his motives. This is

unfettered discretion. But a public

95

authority may do none of these things unless

it acts reasonably and in good faith and upon

lawful and relevant grounds of public

interest.

There are many cases in which a public

authority has been held to have acted from

improper motives or upon irrelevant con-

siderations, or to have failed to take

account. of relevant considerations, so that

its action is ultra vires and void."

While exercising the power of judicial review,

in respect of contracts entered into on behalf

of the State, the Court is concerned primarily

as to whether there has been any infirmity in

the "decision making process". In this

connection reference may be made to the case

of Chief Constable of the North Wales Police

v. Evans, [1982] 3 All ER 141, where it was

said that 'The purpose of judicial review-

"... is to ensure that the individual receives

fair treatment, and not to ensure that the

authority, after according fair treatment,

reaches on a matter which it is authorized or

enjoined by law to decide for itself a

conclusion which is correct in the eyes of the

court."

By way of judicial review the court cannot examine the

details of the terms of the contract which have been entered

into by the public bodies or the state. Courts have

inherent limitations on the scope of any such enquiry. But

at the same time as was said by the House of Lords in the

aforesaid case, Chief Constable of the North Wales Police v.

Evans (supra), the Courts can certainly examine whether

'decision making process" was reasonable, rational not

arbitrary and violative of Article 14 of the Constitution.

If the contract has been entered into without ignoring the

procedure which can be said to be basic in nature and after

an objective consideration of different options available

taking into account the interest of the State and the

public, then Court cannot act as an appellate authority by

substituting its opinion in respect of selection made for

entering into such contract. But, once the procedure

adopted by an authority for purpose of entering into a

contract is held to be against the mandate of Article 14 of

the Constitution, the Courts cannot ignore such action

saying that the authorities concerned must have some

latitude or liberty in contractual matters and any

interference by court amounts to encroachment on the

96

exclusive right of the executive to take such decision.

In support of the stand that it was open to the MTNL to

negotiate with the UIP/UDI/Sterling for purpose of

publication of the directories for Delhi and Bombay without

inviting tenders, reliance was placed on behalf of the

appellants on the judgments of this Court in the cases of

Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir,

[1980] 3 SCR 1338; State of Madhya Pradesh v. Nandlal

Jaiswal, [1987] 1 SCR; Sachidanand Pandey v. State of West

Bengal, [1987] 2 SCC 295 and G.B. Mahajan v. Jalgaon

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Municipal Council, [1991] 3 SCC 91.

From the facts of the case of Kasturi Lal Lakshmi Reddy

(Supra) it shall appear that every year the State used to

auction the blazes in different forests. Most of the

contractors bidding at the auction had their factories

outside Jammu & Kashmir. A decision was taken that from the

year 1979-80 onwards resin extracted from its forests should

not be allowed to be exported outside the territories of the

State and should be utilised only by industries set up

within the State. There were certain forests which were out

of access on account of their distance from the roads and no

contractor could be found for taking tapping contracts even

on the basis of royalty. The Chief Conservator of Forests

and other Forest Officers at a meeting took a decision which

was also confired at a subsequent meeting, between the

Forest Minister, the Forest Secretary and the Chief

Conservator of Forests, that the blazes for such

inaccessible areas should be allotted to some private party.

In view of that decision the second respondent who had

earlier addressed a letter to the State Government offering

to set up a factory for manufacture of resin turpentine oil

and other derivatives in the State and had sought for

allotment of 10,000 metric tonnes of resin annu was

sanctioned the allotment of 11.85 lacs blazes in the

inaccessible areas for a period of 10 years on the terms and

conditions set out in the order. This was challenged in the

aforesaid case. This Court said that whatever be its

activity, the Government is still the Government and is,

subject to restraints inherent in its position and as such

every activity of the Government which has a public element

in it must be reasonable and not arbitrary. However, the

allotment of the contract in favour of the second respondent

was upheld. It was pointed out that the blazes were

situated in inaccessible areas and in spite of the offers

given no bidders were attracted and as such the State had no

option but to allot the said contract on basis of the offer

made by the second respondent.

97

The case of State of Madhya Pradesh v. Nandlal Jaiswal

(supra) related to grant of liquor licences. The procedure

adopted for such grant were being challenged as being

violative of Article 14 of the Constitution. It was said by

this Court:-

"But, while considering the applicability of

Article 14 in such a case, we must bear in

mind that, having regard to the nature of the

trade or business, the Court would be slow to

interfere with the policy laid down by the

State Government for grant of licences for

manufacture and sale of liquor. The Court

would, in view of the inherently pernicious

nature of the cornmodify allow a large measure

of latitude to the State Government in

determining its policy of regulating,

manufacture and sale of liquor would

essentially be a matter of economic policy

where the court would hesitate to intervene

and strike down what the State Government has

done, unless it appears to be plainly

arbitrary, irrational or mala fide."

But even in that case it was said:-

No one can claim as against the state the

right to carry on trade or business in liquor

and the State cannot be compelled to part with

its exclusive right or privilege or

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manufacturing and selling liquor. But when

the State decides to grant such right or

privilege to others the State cannot escape

the rigour of Article 14. It cannot act

arbitrarily or at its sweet will. It must

comply with the equality clause while granting

the exclusive right or privilege of

manufacturing or selling liquor."

The execution of the supplemental agreement cannot be

considered at par with the grant of a liquor licence, which

related to any economic policy.

So far the case of Sachidanand Pandey v. State of West

Bengal (supra) is concerned, in a public interest litigation

the grant of lease in favour of Taj Group of Hotels for

establishment of a Five Star Hotel at Calcutta had been

challenged. It was said:-

"It is to be seen that in the present case no

one has come forward alleging that he has been

discriminated against and his

98

fundamental right to carry on business had

been affected. The very nature of the

construction and establishment of a Five Star

Hotel is indicative of a requirement of

expertise and sound financial position on the

part of those who might offer to construct and

establish them. The decision taken by the All

India Tourism Council was an open decision

well known to everyone in the hotel business.

Yet no one except the ITDC and the Taj Group

of Hotels had come forward with any proposal.

We have it in the record that the Oberoi Group

of Hotels already had a Five Star Hotel in

Calcutta while the Welcome Group of Hotels

were making their own private negotiations and

arrangements for establishing a Five Star

Hotel. In the circumstances, particularly in

the absence of any leading hoteliers coming

forward, the Government of West Bengal was

perfectly justified in entering into

negotiation with the ITDC and the Taj Group of

Hotels instead of inviting tenders."

But at the same time it was said:-

"On a consideration of the relevant cases

cited at the bar the following propositions

may be taken as well established : Stateowned

or public-owned property is not to be dealt

with at the absolute discretion of the

executive. Certain precepts and principles

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 action or by

inviting tenders. Though that is the ordinar

y

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."

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In the case of G.B. Mahajan v. Jalgaon Municipal Council,

(supra), a piece of land had been received by the Town

Municipal Council, Jalgaon, by way of gift. Initially it

had been put to the use Agricultural Produce

99

Market Committee, as a cotton and wholesale fruit and

vegetable market. in terms of the gift, in order to put the

land in a better and more profitable use the Municipal

Council contemplated a project comprising, inter alia,

erection of a commercial complex They also persuaded for

change in the terms of the deed of gift subject to condition

that heirs should be given five shops free of cost in the

commercial complex The scheme contemplated that a developer

would execute the entire project at his own cost and would

make allotments to the shopkeepers to whom the Municipal

Council had given assurances of alternative accommodation at

fixed rates. The developer was also to provide the 17

floors of the administrative building free. of cost to the

municipality. The choice of the respondent No. 6 as

developer for the project aforesaid was questioned. This

Court arrived at the following conclusion:-

"In regard to the allegation that the project

scheme was tailored to suit respondent 6 alone

or that the project as put to tender did not

admit of tenders on fixed comparable

parameters, we find no merit. Sri K.K.

Singhvi submitted that the tender papers were

prepared by reputed architects and the precise

points on which comparative quotations were

invited were specifically incorporated in the

tender papers. The point again is that no

other tenderer expressed any grievance. The

tenders were such that the tenderer could

identify the terms which form the basis of

comparative evaluation. The charge of

arbitrariness cannot be upheld. Tests to be

applied in a given case may be influenced by

the extent to which a decision is supported by

a democratic unanimity` which evidences the

decision granted, of course, the power.'

From the facts of the aforesaid case it shall appear that

Municipal Council had invited competitive proposals as to

the ways in which the potentiality of the land could

commercially be exploited and had also competitive plans and

designs and ultimately respondent No. 6 was entrusted with

the execution of the said scheme.

The cases aforesaid on which reliance was placed on behalf

of the appellants, have also reiterated that once the State

decides to grant any right or privilege to others, then

there is no escape from the rigour of Article 14; the

executive does not have an absolute discretion, certain

100

precepts and principles have to be followed, the public

interest being the paramount consideration. It has also

been pointed out that for securing the public interest one

of the methods recognised is to invite tenders affording

opportunity to submit offers for consideration in an

objective manner. However, there may be cases where in the

special facts and circumstances and due to. compelling

reasons which must stand the test on Article 14 of the

Constitution, departure of the aforesaid rule can be made.

This Court while upholding the contracts by negotiation in

the cases referred to above has impressed as to how in the

facts and circumstances of those cases the decisions taken

by the State and the authorities concerned were reasonable,

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rational and in the public interest. The decisions taken in

those cases by the authorities concerned, on judicial

scrutiny were held to be free from bias, discrimination and

under the exigencies of the situation then existing to be

just and proper. On the basis of those judgments it cannot

be urged that this court has left to the option of the

authorities concerned whether to invite tenders or not

according-to their own discretion and to award contracts

ignoring the procedures which are basic in nature, taking

into account factors which are not only irrelevant but

detrimental to the public interest.

From the statements made in the affidavit filed on behalf of

the MTNL before that High Court and from the relevant

minutes of the Board of the MTNL which were produced before

the High Court during the course of the hearing and copies

thereof have also been produced by one of the appellants

before this Court, it appears that the Board in its 28th

meeting held on 28.12.1990 considered the default made by

UIP in not publishing the directories in terms of the

agreement every year. The Board took note of the fact that

UIP had run into financial difficulties and cash flow

problem. The banks who had advanced loans to them have not

yet received back the payments. The paper mills were not

willing to supply paper on credit. The printing presses

were also not prepared to print the directories without

getting advance payments. In this background the Board

considered the three options (1) to invoke the penalty

clause and print the Directory by the MTNL at the risk and

cost of the UIP. (ii) provide the necessary loan secured or

unsecured to print the directories, (iii) to terminate the

contract and award the work to some other contractor. The

matter was again considered in the 29th meeting of the Board

held

101

on 29th March, 1991 where a note was put up saying that if

the contract with the UIP was terminated and a decision was

taken to go in for a fresh tender the following problems may

arise (i) UIP/UDI may put legal obstacles in retendering,

(ii) the response for printing and delivering the

directories free of cost and also paying royalty may be poor

from the parties, considering the failure of the present

experiment and prohibitive increase in the cost of paper and

printing, (iii) the concept of the yellow pages may suffer a

big set back and may make it unattractive to the advertisers

because of the loss of confidence. The Board in its 29th

meeting discussed the aforesaid agenda and took a decision

that MTNL has no option but to grant loan to UIP/UDI to help

them to print out the directories. The Board also felt that

grant of the loan to UIP/UDI was quite risky but the said

distress measure had to be taken to avoid any stalemate and

was in the large interest of the MTNL. The matter was

further discussed in the 31st meeting of the Board held on

6th August, 1991. The agenda note for this meeting after

stating the aforesaid circumstances said that UIP had

approached MTNL once again with a package of proposals in

supersession of their all requests/proposals made earlier,

so that they may be bailed out of their financial problems

and assuring uninterrupted supply of directories for the

revised period of contract. The note recorded that proposal

had also been received from Sterling through UDI to print

and publish the directories of the MTNL with their financial

support. A decision was taken in order to enable the MTNL

to salvage the contract and get the job executed without

further delay and to avoid consequent inconvenience to the

customers, to negotiate on revised terms with

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UIP/UDI/Sterling. There is no dispute that the Board in its

32nd meeting held on 19th August, 1991 approved the new

terms and conditions, and took a decision that an extension

of the contract be given to UIP/UDI and Sterling for

printing the 13 issues of directories for Delhi and Bombay.

On basis of that decision the impugned supplemental

agreement was executed on 26th September, 1991.

In the facts and the circumstances of the present case it

has to be held that the MTNL has applied the "irrelevant

considerations" doctrine while granting a fresh contract for

a period of five years through the supplemental agreement

dated 26th September, 1991, because it has failed to take

into account considerations which were necessarily relevant

i.e.

102

following the rule of inviting tenders while granting the

contract for a further period of five years on fresh terms

and conditions and has taken into account irrelevant

considerations that (i) if the contract is terminated and a

decision is taken for a fresh tender, the UIP/UDI may put

legal obstacles in retendering, (ii) the response for

printing free of cost and also paying the royalty may be

poor (iii) the concept of the yellow pages may suffer a big

set back and may make it unattractive to the advertisers

because of the loss of confidence. MTNL should have been

conscious of the fact that admittedly the UIP/UDI had

miserably failed in performing their part of the contract

for a period of five years, inasmuch as they were required

to publish between the period 1987-1991 one issue of the

main directory every year for Delhi and Bombay apart from

supplementary. Instead of that they published for the year

1987 directories for Delhi and Bombay after a delay of seven

months and six months respectively. The Delhi issue of

directory for the year 1988 was published only in August,

1990. So far Bombay is concerned there was no publication

for the years 1988, 1989, 1990 and 1991. The MTNL also

overlooked the fact that the period of contract had already

expired and as such the MTNL was in error in treating the

supplemental agreement as only an extension of the original

agreement. Learned counsel appearing for the appellants did

not dispute and contest that by the supplemental agreement

the period of contract which had expired in 1991 was

extended upto 1997/1998 for printing the directories for

Delhi and Bombay, and that the terms and conditions were

different. For the period 1991-1997 additional royalty

which had been agreed to be paid by the UDI/UIP/Sterling was

only Rs. 10 crores whereas for the period 1987-1991 it was

Rs. 20.16 crores.

Philanthropy is no part of the management of an undertaking,

while dealing with a contractor entrusted with the execution

of a contract. The supply of the directories to public in

time, was a public service which was being affected by the

liberal attitude of the MTNL and due to the condonation of

delay on the part of the UIP/UDI. There was no

justification on the part of the MTNL to become benevolent

by entering into the supplemental agreement with no apparent

benefit to the MTNL, without inviting fresh tenders from

intending persons to perform the same job for the next five

years. Public authorities are essentially different from

those of private persons. Even while taking decision in

respect of commercial

103

transactions a public authority must be guided by relevant

considerations and not by irrelevant ones. If such decision

is influenced by extraneous considerations which it ought

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not to have taken into account the ultimate decision is

bound to be vitiated, even if it is established that such

decision had been taken without bias. The contract awarded

for the publication of the directories had not only a

commercial object but had a public element at the same time

i.e. to supply the directories to lakhs of subscribers of

telephones in Delhi and Bombay, every year within the

stipulated time free of cost. In such a situation MTNL

could not exercise an unfettered discretion after the

repeated breaches committed by UIP/UDI, by entering into a

supplemental agreement with the sterling for a fresh period

of more than five years on terms which were only beneficial

to UIP/UDI/Sterling with corresponding no benefit to MTNL,

which they have realised only after the High Court went into

the matter in detail in its judgment under appeal.

The supplemental agreement is really a fresh agreement with

fresh terms and conditions which has been entered by MTNL

without inviting any tender for the same. The supplemental

agreement has been entered to benefit the parties who are

admittedly defaulters by not publishing directories for

Bombay for the years 1988, 1989, 1990 and 1991 and for Delhi

for the years 1989, 1990 and 1991 although they had

collected several crores of rupees for the advertisements

for the directories to be published in the aforesaid years.

We fail to understand as to how a fresh contract for a

period upto 1997/1998 was awarded to UIP/UDI/Sterling in the

garb of an agreement for extension of the period of the

original agreement taking into account irrelevant factors as

already enumerated above. If the supplemental agreement has

been executed without following the procedures which are

essential in view of the repeated pronouncements of this

Court and taking into consideration irrelevant factors, then

can it be said that "decision making process" before the

supplemental agreement was entered into was consistent with

the requirement of Article 14 of the Constitution? In such

a situation there is no scope for argument that any

interference by Court shall amount to an intervention like a

court of appeal. Once the process through which the

supplemental agreement was executed is held to be against

the mandate of Article 14 of the' Constitution, the

supplemental agreement shall be deemed to be avoid.

The appellants also took an objection to the maintainability

of the

104

writ application, on the ground of delay and laches. It was

pointed out that supplemental agreement was entered into on

26th September, 1991 whereas the Writ Petition was filed

before the High Court on 19th May, 1992, although during

this period the petitioners had full knowledge about the

supplemental agreement. According to the petitioners, the

supplemental agreement was kept as a guarded secret by the

MTNL as well as UIP/UDI/Sterling and it is only in April

1992 the petitioners could know some details of the

supplemental agreement. In this connection our attention

was drawn to an advertisement published on 27th September,

1991 saying that official Bombay directory was being

released in December, 1991 and Delhi telephone directory in

January, 1992. That advertisement was given on behalf of

the UDI only. In the body of the advertisement it was

mentioned that UDI and Sterling have made all necessary

arrangements to ensure that every subscriber receives up-to-

date directory in Delhi and Bombay in time. It was urged on

behalf of the writ-petitioners that under the supplemental

agreement it was the Sterling who had been given the right

to publish the directories and as such in normal course the

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advertisement should have been given in the paper on behalf

of the Sterling but only with an ulterior motive the

advertisement was published on behalf of the UDI. Our

attention was also drawn to several communications addressed

by the Department of Telecommunications, Madras, to the dif-

ferent authorities of the MTNL making enquiries as to

whether the Sterling had been entrusted with the printing of

directories for Delhi and Bombay, as tenders for printing

and supply of main telephone directories with yellow pages

on turnkey basis were under consideration at Madras. The

aforesaid queries were made in the month of December, 1991.

The office of the Chief General Manager, MTNL, on 2nd

January replied to the Divisional Engineer, Madras

Telephones, saying "perhaps, MTNL, Corporate Office have

entrusted some job of printing of telephone directories to

M/s Sterling Computers Ltd. In this connection, you are

therefore requested to contact Chairman-cum-Managing

Director, MTNL". A letter dated 30.12.1991 was addressed by

Sterling to the Divisional Engineer, Madras Telphones, in

reply to the query whether they had been entrusted with the

printing and supply of telephone directories, saying "Much

as we would like to provide you a copy of the order of

Mahanagar Telephone Nigam Ltd. we are unable to do so due to

certain circumstances beyond our control." Reference was

made to yet another communication dated 30.12.1991 addressed

105

by MTNL to Deputy General Manager, Madras Telephones, saying

that so far the Sterling Computers were concerned "they have

been allowed a sub-contract by M/s UDI for printing the

directories for Delhi and Bombay", without giving the

details of any such contract. It was pointed out on behalf

of the the writ-petitioners that an affidavit, was filed on

behalf of the Sterling, before the Madras High Court in

connection with another Writ Petition on 19.4.1992, in which

the details of the supplement agreement were disclosed. The

Writ Petition in the Delhi High Court was filed on

19.5.1992. Under the circumstances mentioned above it is

difficult to reject the Writ Petition on the ground of delay

and laches.

As already mentioned above, Mr. Venugopal, the learned

counsel appearing for the writ-petitioners, offered an

amount of Rs. 60 crores on behalf of the writ-petitioners as

royalty to the MTNL for printing the directories for Delhi

and Bombay for the period of the supplemental agreement, if

the said job is entrusted to them on the same terms and

conditions. For that period the UIP/UDI/Sterling have

offered only Rs. 10 crores as additional royalty. This

Court could have considered the desirability of directing

the MTNL to consider the said offer of Rs. 60 crores on

behalf of the writ-petitioners by according to us, if any

such direction is given and on basis of such direction the

job of printing the directories for the period in question

is given to the writ-petitioners, the procedure so adopted

shall suffer from the same vice. The MTNL will enter into

an agreement with the writ-petitioners without inviting

tenders and without offering opportunities to others who may

be interested in the printing of the directories for Delhi

and Bombay. As such while affirming the judgement of the

High Court, we direct that all steps should be taken by MTNL

as early as possible for publishing the directories for

Delhi and Bombay so that public in general should not suffer

any more. The appeals are accordingly dismissed but in the

facts and circumstances of the case there shall be no order

as to costs.

Before we part with the judgment we shall like to strike a

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note of caution. It is a matter of common experience that

whenever applications relating to awarding of contracts are

entertained for judicial review of the administrative

action, such applications remain pending for months and in

some cases for years. Because of the interim orders passed

in such applications, the very execution of the contracts,

are kept in abeyance. The cost

106

of different projects keep on escalating with passage of

time apart from the fact that the completion of the project

itself is deferred. This process not only affects the

public exchequer but even the public in general who are

deprived of availing the facilities under different

projects. As such it need not be impressed that while

exercising the power of judicial review in connection with

contractual obligations. Courts should be conscious of the

urgency of the disposal of such matters, otherwise the power

which is to be exercised in the interest of the public and

for public good in some cases becomes counter-productive by

causing injury to the public in general.

N.V.K. Appeals dismissed.

107