Mahalaxmi Traders v. State of U. P. Others — 1989 DIGILAW 866 (ALL)

JUDGMENT S.H.A. Raza, J. - By means of this writ petition the petitioner has challenged the cancellation of contract given to it which was entered into between the petitioner and the U.P. Rajkiya Nirman Nigam Ltd. (hereinafter referred to as the Nigam) for the supply of water storage tanks. 2. The petitioner is a partnership firm and an authorised distributor of Sintex water storage tanks. The said Nigam which is an 'Estate' within the meaning of Article 12 of the Constitution, received a letter dated 15.3.88 from opposite party No. 2 to the effect that they often repaired water storage tanks of different capacity and, as such, opposite party No. 2 requested the maximum possible discount on its price list for supplies throughout the State and Delhi against the orders .placed by the Head office of opposite party No. 2. In response to the said letter personal discussions took place and an offer quoting maximum discount was given vide letter dated 22.6.88. Thereafter several technical queries were made by the Nigam. The opposite party No. 2 accepted to enter into a quantity contract with the petitioner for supply of Sintex H.D.P.E Water Storge tanks to various units of the Corporation. The rates setled were Rs, 360 per litre and it was also provided that above rates would be upto 31.3.89. The estimated amount of quantity contract was stated to be Rs. 50 lacs. It was also provided in the contract that the firm will submit bank guarantee in the name of the Managing Director and in the case of bank guarantee for five years, it has to be ensured that extension of one year was also provided. 3. The said quality contract was accepted by the Nigam on the recommendation of the Commitee headed by the Managing Director. Thereafter opposite party No. 2 and its individual units placed orders for Rs. 1,33,524/in place of Rs. 50 lacs as agreed by the Nigam and as such the petitioner suffered a great loss along with its manufacturer. Vide order dated 4.4.89 the contract entered into between the parties was cancelled resulting into exclusion of the petitioner firm and manufacturer from making supply of said tanks to opposite party No.2. The said order was allegedly passed without giving any opportunity of hearing and that the said order is illegal and arbitrary. 4. Vide order dated 4.4.89 the contract entered into between the parties was cancelled resulting into exclusion of the petitioner firm and manufacturer from making supply of said tanks to opposite party No.2. The said order was allegedly passed without giving any opportunity of hearing and that the said order is illegal and arbitrary. 4. In the counter affidavit filed on behalf of opposite parties it has been stated that rate of contract dated 6.10.88 was extended upto 31.3.1990 which was to expire on 31.3.89. However, it was made clear in the contract that no compensation shall be payable to the petitioner in case of any losses. It has been further stated that it was provided in the letter dated 7.10.88 that in case client of any particular project desires the said tanks, the matter will be referred to the head office through the General Manager and such purchases can be done only after approval from the head office. 5. The maintainability of writ petition under Article 226 of the Constitution has also been challenged by the opposite parties. It has been contended that is was not necessary to give any opportunity of hearing to the petitioner to whom copy of cancellation order was not sent, it was a quality contract and the respondents were free to revoke the contract at any time and no rights were conferred upon the petitioner. 6. From the record it appears that contract was to continue for a period of at least five years but so far as rates are concerned, they were valid upto a particular date where after same could have been maintained or revised but the Nigam took a decision to maintain the same rate for a period of one year. The said rate could not have been changed and the contract itself could not have been put to an end on the back of the petitioner. There was no condition in the agreement to terminate the contract on any ground and merely because the petitioner could not claim compensation on a particular ground, that could not be taken to mean that contract itself Could have been terminated at any point of time. Nothing could be pointed out from the letter of opposite party No. 2 or the contract from which it could be said that the contract itself could be put to an end. Nothing could be pointed out from the letter of opposite party No. 2 or the contract from which it could be said that the contract itself could be put to an end. So far as the rates are concerned, the same were said to be revisable after a period of one year. 7. The main question for consideration is once the contract having been given and rates accepted between the parties, whether it was open for the opposite parties to terminate the said contract without associating the petitioner at all and direct its units not to purchase the same Tanks from the petitioner and exclude him in this manner and start negotiations with other parties behind the back of the petitioner. In this connection reference was made to the case of Ramana Dayaram Shetty vs. The International Airport Authority of India ( AIR 1979 SC 1628 ). In the said case the court observed: It must, therefore, be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largess, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norm which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largess including award of jobs, contracts, quotas, licences etc., must be confined and structured by rational, relevant and nondiscriminatory standard or norm and if the government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory. 8. Reference was also made to the case of M/J. Kasturi Lal Lakshmi Reddy vs State of J. & K. (1980 SCC (4) 1) in which case the court observed that grant of largess, licences, leases, quotas, jobs or other benefits must satisfy dual test of'reasonableness and in public interest and the choice of recipient must also not be arbitrary or capricious but according to some norm or standard. In Ram and Shyatn Company vs. State of Haryana and others ( 1985 (3) SCC 267 , the court held : The appellant suffered an unfair treatment by the State in discharging its administrative functions thereby violating the Fundamental principle of fairplay in action, inasmuch as a unilateral offer, secretly made, not correlated to any reserved price made by respondent 4 after making false statement in the letter was accepted without giving any opportunity to the appellant either to raise the bid or to point out the falsity of the allegations made by respondent 4 in the letter as also the inadequacy of his bid. This method is open to the abuse of favoritism and nepotism. Before giving up the auction process and accepting a private bid secretly offered, the authority must be satisfied that such an offer if given in open would not be outmatched by the highest bidder. In the absence of such satisfaction, acceptance of the secret offer in such a way would also amount to arbitrary action in the matter of distribution of State largesse which is impermissible. 9. In Harminder Singh Arora vs. Union of India and others ( 1986 (3) SCC 247 ) it was held : The Government may enter into a contract with any person but in so doing the State or its instrumentalities cannot act arbitrarily. In absence of any specific policy of the Government it is open to the State to adopt any policy. But if the authority or the State chooses to invite tenders then it must abide by the conditions laid down in the tender notice and the result of the tender and cannot arbitrarily and capriciously accept a much higher tender to the detriment of the State. 10. The present case stands on a better footing. In this case although contract was entered into for supply of said tanks worth Rs. 50 lacs but within a period of one year without giving any opportunity to the petitioner, the cancellation of his contract was obviously arbitrary. Even if other competitors offered higher price behind the back of the petitioner, same could not have been accepted unless an opportunity was given to the petitioner because contract was subsisting in his favour. So far as the price is concerned, the renewal has already been granted by the authority concerned. Even if other competitors offered higher price behind the back of the petitioner, same could not have been accepted unless an opportunity was given to the petitioner because contract was subsisting in his favour. So far as the price is concerned, the renewal has already been granted by the authority concerned. In this context reference was made to the case of M/s Radhakrishna Agarwal vs. State of Bihar ( AIR 1975 SC 1496 ), but that case will not apply as in that case contract was cancelled on breach of certain conditions of contract and the authorities under the terms of contract had power to terminate the contract in that event and it was in these circumstances held that opportunity of hearing was not necessary. The Court observed: The limitations imposed by rules of natural justice cannot operate upon powers which are governed by the terms of an agreement exclusively. The only question which normally arises ii such cases is whether the action complained of is or is not in consonance with the terms of the agreement. lit. Here the plea is that same is not in terms of agreement and the agreement may it be for the price, having been extended for a period of one year, there was no option for the opposite parties, to cancel it in this manner. In Bareilly Development Authority vs. Ajai Pal Singh and others ( 1989 (2) SCC 116 ) the court held : .....it is now settled that the contract entered into between the State and the persons aggrieved is nonstatutory and purely contractual, the rights are governed only by the terms of the contract and no writ or order can be issued under Article 226 so as to compel the authorities to remedy a breach of contract pure and simple. 12. No one can dispute this interpretation. In that case there was no concluded contract and whatever was done by the development authority was done within the terms of contract which is not the position in this case. Similarly in the Case of State of U P. vs. Maharaja Dharmander Prasad Singh and others ( 1989 (2) SCC 505 ) it was held that cancellation of the permission on the ground that the permission was obtained by fraud, misrepresentation and in violation of covenant was valid. Similarly in the Case of State of U P. vs. Maharaja Dharmander Prasad Singh and others ( 1989 (2) SCC 505 ) it was held that cancellation of the permission on the ground that the permission was obtained by fraud, misrepresentation and in violation of covenant was valid. In the instant case, the petitioner's civil rights have been violated and the opposite parties have acted arbitrarily in cancelling the extension of price granted by it unilaterally without associating the petitioner at all with the competitors offering lower price and asking the petitioner whether it was possible for him to offer the same price and only thereafter the earlier order could have been cancelled, but not the contract itself. In these circumstances, the alternative remedy will not stand as bar to the maintainability of the writ petition. 13. In view of what has been stated above, the writ petition is allowed. The order dated 4. 4. 89 cancelling the contract contained in Annexure 7 to the writ petition is quashed. However, it will be open to the opposite parties to act in accordance with law after giving opportunity of hearing to the petitioner. However, there will be no order as to costs.