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Judgment
Gupta, J.—On 29-12-1995 it was decided and directed that this petition be disposed of finally at the motion hearing stage, without being
formally admitted to hearing.
On Oct. 19, 1995 respondent No. 2, Excise Commissioner, J. & K. issued a notice inviting tenders (NIT for short) for and on behalf of the
Governor of the State inviting tenders for the supply of 6 lakhs and 17 lakhs bulk litres of Rectified Spirit (94.4% and above at Room"" temperature
of 15 degree Celsius and of ISI 'A' Grade Quality) which was required for the Excise Warehouse, Jammu for the Alcohol year 1995-96. In
response to this NIT, various parties submitted their tenders. We are, however, concerned with the tenders submitted by six parties, the details
whereof have been given in para 6 of the petition. The names of these parties and the rates quoted by them are as under:--
i. M/s. Ranson Industries â€"Rs. 9.99 per bulk litre.
ii M/s. Krishan Baldev Pawa â€" Rs. 12.70 per bulk Itr. including Sales
Tax,
iii M/s. Kashmir Distillery Pvl. Ltd; â€"Rs. 12.47 per bulk Itr. excluding Sales
Tax.
iv. M/s. New India Distillery (Petitioner â€"Rs. 13. 70 per bulk Itr. including Sates
No.1) Tax.
V. M/s. Dogra Distillery (PetitionerNo. 2) â€" Rs. 13.70 per bulk Itr. including Sales
Tax.
vi. M/s. Dewan Modern Breweries. â€" Rs. 14. 70 per bulk Itr.
It appears that even before the controversy had started, M/s. Ranson Industries, the lowest tenderer practically backed out from the rate quoted
by it (Rs. 9.99 per bulk litre). Even though the backing out was conditional inasmuch as it by addressing a communication on 21-11-1995
informed the Government that by mistake, inadvertence and oversight had wrongly quoted the rate of Rs. 9.99 per bulk litre by ignoring 12.5%
price preference stipulation. Instead of, therefore, sticking to the original rate of Rs. 9.99 per buik litre, M/s. Ranson Industries offered the rate of
Rs. 11.75 per bulk litre. As will be seen later, even this offered rate of Rs. 11.75 per bulk litre was still lowest amongst the rates offered by all the
tenderers.
Respondent No. 3 M/s. Kashmir Distillery Pvt. Ltd. had offered the rate of Rs. 12.47 per bulk litre and was No. 3 in the order of lowest rates
offered by the tenderers. It appears that respondents Nos. 1 and 2, perhaps because of the backing out of M/s. Ranson Industries and perhaps on
being informed that the rates of molasses, raw-material out of which rectified spirit is manufactured had fallen down heavily in the market, decided
to make efforts by negotiations for reduction of the rates offered by the tenderers. The Departmental Purchase Committee (DPC for short)
comprising of the Excise Commissioner, Deputy Excise Commissioner (Executive), Jammu, Deputy Director. Accounts and Treasuries, Jammu,
Deputy Excise Commissioner, Warehouse, Jammu and Joint Director, Industries and Commerce, Jammu thus started the process of negotiations
with the tenderers mentioned above for bringing down the rates quoted by them. As indicated above, the representatives of M/s. Ranson Industries
had quoted the rate of Rs. 11.75 based on negotiations, after backing out from the original quoted rate of Rs.9.99. The next in line, M/s. Krishan
Baldev Pawa, on negotiations quoted the rate of Rs. 12.45 per bulk litre as against the rate of Rs. 12.70 per bulk litre.
Then the turn of respondent No. 3 M/s. Kashmir Distillery Pvt. Ltd. came. Initially this respondent refused to alter or revise the rate originally
quoted in the tender (Rs. 12.47 per bulk litre) but on again being negotiated, agreed to bringdown the rate by 7 paisa to make it to Rs. 12.40 per
bulk litre. He definitely told the DPC that he was not in a position to further lower down his rates at any cost. It is worthwhile to refer to the
minutes of the meeting of the DPC held on 22-11-1995 to understand the situation in which respondent' No. 3 was approached for bringing down
the rates and his reaction to the same. The relevant extract of these minutes in so far as they relate to respondent No. 3 reads as under:--
......... ""Subsequently the representative of Kashmir Distilleries were called in Shri P. L. Saraf, Chairman (Kashmir Distilleries) insisted that the
rates of Rs. 12.47 + taxes per BL quoted by him should be accepted by the Committee because S. S. I. Unit enjoyed price preference. He
however, refused to enter into any negotiations and left the Chamber in huff. The proceedings of the Committee, therefore, remained
inconclusive."".........
The minutes of the meeting of the DPC held on 24-11-1995 also reflect upon the subsequent development regarding the rates offered by
respondent No. 3. The relevant extract of the minutes of the meeting held on 24-11-1995 reads as under :--
The Committee, therefore, decided to send for Shri P. L. Saraf, Chairman, Kashmir Distilleries who was offered to negotiate at Rs. 11. 75 +
taxes per bulk litre FOR but he refused to accept this offer. He, however, indicated that he could bring down the offer by seven paise at the most
to make it 12.40:+ Sale Tax extra per BL FOR. Any further decrease in rate would not be acceptable to him. The question of supplying rectified
spirit at Rs. 11.75 + taxes etc. per BL FOR according to him did not arise. The Committee, therefore, did not peruse the matter with him any
more.
After having thus been satisfied, on making persuasive efforts that respondent No. 3 was not inclined at all to quote any rate lower than Rs.
12.40, the DPC went on to negotiate with the two tenderers next in line, i.e. petitioners Nos. 1 and 2, M/s. New India Distillery and M/s. Dogra
Distillery. Both these petitioners had offered the rate of Rs. 13.70 originally in the tenders submitted by them. The minutes of the meeting of DPC
held on 24-11-1995 clearly demonstrate the trend that had emerged, based on the negotiations held by the DPC with these two petitioners. The
relevant extract of these minutes, in so far as it relates to the petitioners reads thus :--
The next option available to the Committee was to call for the representative of the next firm available in the comparative statement strictly in
accordance with the rates offered. It was seen from the record that M/ s. Dogra Distilleries, Gangyal, Jammu and M/s. New India Distilleries, Nai
Basti, Sunjwan, Jammu have offered Rs. 13.70 per BL taxes extra FOR each. Therefore, it was decided that the representatives of both the firms
be called for negotiations to see the markeftrend. Shri Sneh Gupta representative of New India and Shri R. P. Shastri representative of Dogra
Distilleries appeared before the Committee at 3 p.m. today i.e. 24-11-1995 one by one. Both of them were offered rate of Rs. 9.99 per BL taxes
extra FOR. They did not accept this offer. After a lot of pursua-tions both of them agreed to supply the Rectified spirit at Rs. 1,1.45 per BL +
Sales Taxe surcharge extra FOR, The DPC, therefore, approved the rate of rectified spirit of both the SSI Units as both the parties have conveyed
in writing their offers which have been seen and signed by all Members of DPC. There is difference of 93 paise between the rate offered by
Kashmir Distilleries and the other two viz. New India and Dogra Dis-trilleries and the rates offered by two latter units would enable the
Government to save almost 23 lakhs if full quota of Rectified Spirit is lifted.
The DPC accordingly recommended that rate of contract be thus approved in favour of the petitioners by dividing the purchases to be made
from them based on the quantity that they would be supplying in accordance with the aforesaid rates offered by them. Accordingly vide his letter
dated 27-11-1995, the Excise Commissioner, after highlighting the details regarding all the tenderers, the background of the case and the
negotiations as also result thereof conveyed to the Government that the DPC has decided to allot contract for supply of rectified spirit in favour of
the petitioners @ Rs. 11.45 and that the decision taken by the DPC may be approved by the Government. The operative portion of this letter
reads thus:--
Considering all the material facts, the DPC decided to allot contract for supply of Rectified Spirit in favour of M/s. Dogra Distilleries and M/s.
New India Distilleries at the rate of Rs. 11.45 + Sales Tax per BL FOR Excise Warehouse, Jammu. The DPC taking a lenient view also decided
to forfeit the earnest money of Rs. 5,000/- deposited by M/ s. Ranson Industries Pvt. Ltd. for refusing to supply the Rectified Spirit at the rate
initially offered by him. In view of the facts explained above, it is requested that the decisions taken by the Committee may kindly be approved at
the earliest.
On receipt of the aforesaid communication from the Excise Commissioner, instead of approving the decision taken by the DPC, the Govt.
through Director, Finance, in the Finance Department asked the Excise Commissioner vide communication dated 8-12-1995 to send a written
offer to respondent No. 3 to supply rectified spirit @ 11.45 and, on his showing willingness to do so, to allot contract of such supply to him, rather
than to the petitioners. Ultimately all this culminated in the issuance of a supply order dated 9-12-1995 in favour of respondent No. 3 whereby he
was asked to supply rectified spirit @ Rs. 11.45 per Bulk Litre (6 lakhs built litres) for the period Dec. 1995 to March 1996 with further option,
at the discretion of Excise Commissioner to supply additional 17 lakhs litres at the same rate, i.e. 11.45, for the remaining part of Alcoholic year,
1995-96 i.e. April 1996 to November 1996. It is this act of respondents Nos. I and 2 that has been impugned and challenged in this petition by
the petitioners on a number of grounds.
The subject of the grant of contracts; including the sale of privileges and the conferring of largesses at the hands of the State is now governed
and regulated by well established para-meters of law, emanating from Article 14 of the Constitution of India, after the pronouncement of the
judgment of the Supreme Court in the case of Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, . It is bounden
duty of the State rather its consitutional obligation not to act arbitrarily, unfairly or unreasonably in the matter of grant of contracts to the citizens
and not to discriminate between one citizen and another on this score. The acts of the State in matters relating to grant of contracts has to be
guided by objective consideration and in public interest.
Mr. Z.A. Shah, learned counsel appearing for respondent No. 3 while relying upon a judgment of the Supreme Court in the case of C.K.
Achuthan Vs. The State of Kerala and Others, , submitted that it was entirely for the Government and it is perfectly open to it, as it is to a private
party to choose a person to its liking to fulfil contracts which it wishes to be performed and when the Govt. chooses a particular person, rather than
another, the aggrieved party cannot claim the protection of Article 14 because, the choice of a person to fulfil a particular contract must be left to
the Government. In support of this contention Mr. Shah also relied upon a judgment of the Supreme Court in the case of State of Orissa and
Others Vs. Harinarayan Jaiswal and Others, . We must say that the learned counsel for respondent No. 3 is not right in canvassing such a
proposition of law after the pronouncement of the celebrated judgment by the apex Court in Ramana Dayaram Shetty Vs. International Airport
Authority of India and Others, . The law on the subject has since undergone a sea-change. Undoubtedly the observations made by the Court in the
cases of C.K. Achuthan Vs. The State of Kerala and Others, and State of Orissa and Others Vs. Harinarayan Jaiswal and Others, were noticed
by the Bench in Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, but were not specifically approved, even though
their Lordships did not disapprove in terms these observations in the aforesaid two judgments. The observations in the aforesaid two judgments,
therefore, have to be appreciated and considered in the light of the ratio in International Airport Authority and other subsequent judgments, and by
taking into account development of constitutional law regarding the State action based on fairness, objectivity, reasonableness and in public
interest, after the pronouncement of the judgments in the International Airport Authority of India and in a number of other cases, subsequently
delivered by the Supreme Court. The following observations of their Lordships in International Airport Authority of India while referring to the
observations in C.K. Achuthan Vs. The State of Kerala and Others, would help every one in understanding the true scope of the obligation of the
State with regard to the applicability of Article 14:--
..... The respondents relied very strongly on this observation in support of their contention that it is open to the 'State' to enter into contract with
any one it likes and choosing one person in preference to another for entering into a contract does not involve violation of Article 14. Though the
language in which this observation is couched is rather wide, we do not think that in making this observation, the Court intended to lay down any
absolute proposition permitting the State to act arbitrarily in the matter of entering into contract with third parties. We have no doubt that the Court
could not have intended to lay down such a proposition because Hidayatullah, J. who delivered the judgment of the Court in this case was also a
party to the judgment in Rashbihari Panda etc. Vs. State of Orissa, which was also a decision of the Constitution Bench, where it was held in so
many terms that the State cannot act arbitrarily in selecting persons with whom to enter into contracts. Obviously what Court meant to say was that
merely because one person is chosen in preference to another, it does not follow that there is a violation of Article 14, because the Government
must necessarily be entitled to make a choice. But that does not mean that the choice be arbitrary or fanciful. The choice must be dictated by
public interest and must not be unreasoned or unprincipled.
In fact the observations made in C.K. Achuthan Vs. The State of Kerala and Others, also came up for consideration in the case of Harminder
Singh Arora Vs. Union of India (UOI) and Others, , where once again their Lordships approved the observations made in International Airport
Authority of India, as quoted above. In fact in Harminder Singh v. Union of India (supra) their Lordships further held :--
..... It is true that the Govt. may enter into a contract with any person, but in doing so, the State or its instrumentality cannot act arbitrarily.
The following observations in the same judgment also import consideration:--
In the instant case, the instrumentalities of the State invited tenders for the supply of fresh buffaloes and cows milk and, therefore, this case has to
be decided on the basis of bid by the tenderers. There was no question of any policy in this case. It is open to the State to adopt a policy different
from the one in question. But if the authority or the State Government chooses to invite tenders then it must abide by the result of the tender and
cannot arbitrarily and capriciously accept the bid of respondent No. 4 although it was much higher and to the detriment of the State. The High
Court, in our opinion, was not justified in dismissing the writ petition in limine by saying that the question relates to the contractual obligation and the
policy decision cannot be termed as unfair or arbitrary. There was no question of any policy decision in the instant case. The Contract of supply of
milk was to be given to the lowest bidder under the terms of the tender notice and the applicant being the lowest bidder he should have been
granted the contract to supply, especially, when he has been doing so for the last so many years.
Dwelling upon the concept of reasonableness and public interest, in another celebrated judgment in the case of Kasturi Lal Lakshmi Reddy,
Represented by its Partner Shri Kasturi Lal, Jammu and Others Vs. State of Jammu and Kashmir and Another, their Lordships of the Supreme
Court held as under;--
Where any governmental action fails to satisfy the test of reasonableness and public interest discussed above and is found to be wanting in the
quality of reasonableness or lacking in the element of public interest, it would be liable to be struck down as invalid. 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 arc other considers-tions which render it
reasonable and in public. interest to"" do so. Such considerations may be that some Directive Principle is sought to be advanced or implemented or
that the contract or the property is given not with a view to earning' revenue but for the purpose of carrying out a welfare scheme for the benefit of
a particular group or section of people deserving it or that the person who has offered a higher consideration is not otherwise fit to be given the
contract or the property. We have referred to these considerations only illustratively, for there may be an infinite variety of considerations which
may have to be taken into account by the Government in formulating its policies and it is on a total evaluation of various considerations which have
weighed with the Government in taking a particular action, that the Court would have to decide whether the action of the Govt. is reasonable and in
public interest.....
Viewed in the light of the aforesaid salutary principles of law, the action of the respondents in arbitrarily awarding the contract of supply of
rectified spirit to respondent-3 cannot be termed as either reasonable or in public interest. On the contrary it smacks of not only unfairness and
impropriety, but appears to be both unreasonable and against public interest, apart from being discriminatory in so far as petitioners are concerned.
As is seen, when once DPC had called respondent No. 3 for negotiations, had a round of negotiations with its representatives and a fact situation
had emerged that respondent No. 3 was not at all willing to supply rectified spirit at any rate lower than Rs. 12.40, and in any case not at the rate
of Rs. 9.99, as had been quoted by Ranson Industries, there was no question of the DPC or the Government going back to respondent No. 3 for
another round of re-negotiations or with an offer to supply rectified spirit at a rate, which subsequent to the negotiations held with him, had been
quoted by the petitioners. In fact, if one appreciates the tact situation very clearly and in true perspective, one finds that after having failed to
persuade respondent No. 3 for bringing down the rate from Rs. 12.40, downward, the DPC had to enter into negotiations with the petitioners. The
petitioners had offered the rate of Rs. 11.45, almost more than a rupee lesser per bulk litre than that had been offered by respondent No. 3. Why
should respondent Nos. 1 and 2 go back to respondent No. 3 when other tenderers had offered rates lower than it in the process of negotiations,
which started with Ranson Industries and went on, one by one from tenderer to tenderer. If, after each round of negotiations with each tenderer,
the DPC or the Government is to go back to the first tenderer or the second tenderer etc. it would be an unending process. Once you choose to
adopt a system of awarding contracts by negotiations, the only permissible rule is to negotiate with each eligible party (read tenderer) and to give
every such party a fair and reasonable chance of putting across its offer and thereafter, to award contract at the rate and on the terms best suited to
the Government. In fact respondent Nos. 1 and 2, after they had negotiated with the petitioners had a duty to also call the last in the list of
tenderers M/s. Dewan Modern Breweries and explore the possibilities of further reduction of rate. If the petitioners could come down by as much
as Rs. 2.25 per litre from the rates quoted by them originally, one would not say that the last tenderer M/s. Dewan Modern Breweries would not
have come down to a rate, still over than the one offered by the petitioners. It is not, therefore, understood as to why the DPC stopped, in the
process of negotiations with the petitioners and did not think it possible to explore the possibilities and opportunities of negotiating with M/s.
Dewan Modern Breweries as well and find out as to whether it could offer rate better than the petitioners, more suitable and attractive to the
Government.
Considering all the aspects of the matter, therefore, and in the light of the constitutional and legal position as discussed above, we have no
doubt whatsoever that the act of the respondent Nos. 1 and 2 in awarding contract of supply of rectified spirit to respondent No. 3 was wholly
and patently unconstitutional and illegal. It has to be quashed and set aside.
What is the course now available to respondent Nos. 1 and 2? Does quashing of the contract awarded to respondent No. 3 mean that the
petitioners be awarded the contract? No. During the course of hearing of the petition we found that the entire question relating to the allotment of
this contract and the issues arising out of it are shrouded in all types of controversies. The process of negotiation, from stage to stage, the rates
quoted by various parties, the sharp decline in the rates of molasses etc. etc. are such factors which dissuade us from saying that the contract
should be awarded to either the petitioners or any one else. In fact, as is evident from the Court order dated 25-1-96, a suggestion was put across
to the learned Advocate General that the Government may initiate fresh process for allotment of contract by either receiving fresh offers from the
eligible tenderers or to invite tenders all over again. For the reasons best known, the learned Advocate General informed the Court that the Govt.
was not ready to go by the suggestion and that the offer to it by the Court made was not acceptable to the Govt. Be that as it may, we are firmly of
the view that, on over-all consideration of the situation as has now finally emerged, the best course of action available, which is both reasonable,
fair and in public interest, will be to direct respondent Nos. 1 and 2 to invite fresh offers from all eligible persons by initiating the process of inviting
fresh tenders on the subject all-over again. Such a course of action shall, in our considered opinion, apart from being in best public interest, also set
at rest all controversies relating to either the parties or the persons who had submitted their tenders, or even the rates that were being quoted from
party to party. Since disputes have arisen between the parties relating to various rates being offered in the process of negotiations, we do not think
it proper, at this stage to confine the consideration process only to those persons who had originally offered their tenders. In our view, the purity of
the system demands that an also after fresh tendering process be initialed so that all the eligible persons are afforded reasonable opportunities of
offering their rates. We cannot fail to notice that the rates offered during the process of negotiation had come down to as low as Rs. 11.45 per
bulk litre as against the highest rate offered originally of Rs. 14.70 per bulk litre. In fact during the course of hearing, it was suggested to us by the
learned counsel for the parties that the market price of molasses has gone down still further and that there is a bright possibility of the rates now
being quoted even at a level lower than Rs. 11.45 per bulk litre. While, therefore, fresh tendering process is to be initiated, undoubtedly the
Government cannot lose! sight of this important intervening development. The course of action that we now propose to adopt, viz. issuance of
fresh notice inviting tenders, will also inspire public confidence, shall appear to be reasonable, objective and should be free from all unnecessary
controversies.
For the foregoing reasons, therefore, we allow this petition. The impugned supply order dated 9-12-95 is quashed and set aside with all
consequences. By a writ of mandamus, we direct respondent Nos. 1 and 2 to initiate fresh tender inviting process in accordance with the relevant
and applicable rules on the subject. If, however, respondent Nos. 1 and 2 feel that ""such tendering process to be initiated afresh might take a little
time, and in the meanwhile public interest demands and the 'requirements of the State call for the purchase of rectified spirit on short term basis, it
may resort to such methods as are in the best interest of the Govt. for purchasing rectified spirit on such short-term basis, at the lowest rates, by
adopting such procedure which would be wholly reasonable and absolutely in public interest. It is, however, made clear that such a short term
purchase, pending finalisation of the fresh tendering process and the issuance of fresh contract based on such tendering process, shall not exceed a
period of two weeks from today. It shall be permissible for the Govt., and entirely up to it to ensure that the fresh tendering process is initiated,
completed and taken to its logical conclusion within this period. No order as to costs. Connected CMPs shall stand disposed of.