JUDGMENT- Dr. B. P. SARAF, J.:---The petitioners are the owners of the first floor of a building known as Ashrafi Mahal situated at Plot No. 154, Lal Bahadur Shastri Marg, Opposite Belgrami Road, Kurla, Bombay 400 070. The respondent No. 1 is the Union of India who had taken the above property on lease from the petitioners vide a deed of lease dated 31-3-1982 for the purpose of office of its Bombay Telephone Department. The respondent No. 2 is the Mahanagar Telephone Nigam Limited (hereinafter referred to as "Nigam"), a fully owned Government of India undertaking, which has taken over the functioning of the Telephone Department in Bombay from the Union of India on and from 1-4-1986. The property in question was leased out for a period of five years commencing from 13-2-1981. The area of the premises is 2,850.37 sq.ft. and as per the lease deed, the monthly rent was fixed at Rs. 3,50 per sq. ft. of the built up area inclusive of 50 paise as service charges but exclusive of municipal charges. Under Clause 4 of the lease deed, Union of India had the option of extending the lease for a further period of 41/2 years with mutual consent and after reviewing the prevailing market rates at that time for the purpose of fixing the rent for the extended period of lease. The said clause also contemplates a three months notice by the Union of India of its intention to extend the lease, if it so desired. As the lease was to expire on 12-2-1986 and no notice was received by the petitioners though less than three months were left, the petitioners addressed a letter dated 7-1-1986 to the Deputy General Manager (Administration) of Bombay Telephones, Colaba, Bombay, asking him to intimate them whether they were interested in exercising the option of extending the lease for a further period of 41/2 years as contemplated by Clause 4 of the lease deed. In reply, the petitioners were informed by the Estate Officer of the Union of India by letter dated 30-1-1986 that they were interested to continue the lease. It was also stated in the said letter that the matter had been referred to the Ministry of Law for their advice and further communication will follow on the receipt of the advice of the said Ministry. It was also stated in the said letter that the matter had been referred to the Ministry of Law for their advice and further communication will follow on the receipt of the advice of the said Ministry. Thereupon, the petitioners by letter dated 31-1-1986, informed the Estate Officer that for renewal of the lease, the rent for extended period had to be fixed by mutual discussion before the expiry of the period of existing lease which was to take effect on 12-2-1986. The petitioners also stated that, according to them, the revised monthly rent should be about Rs.7 per sq. ft. inclusive of Rs. 1/- as service charges in addition to municipal taxes etc. As the respondents did not vacate the premises on the expiry of the original period of lease on 12-2-1986 and continued to remain in occupation even thereafter the petitioners repeatedly called upon the respondents to revise the rent in terms of Clause 4 of the lease deed without delay. In this process, the petitioners could learn that a Committee known as `Fair Rent Committee had been constituted for the purpose of determining the fair market rent of the premises in question, which had already submitted its report and that action was being taken thereupon. The petitioners, however, did not get a copy of the report of the Committee or any order revising the rent in pursuance of the recommendation of the said Committee. 2. On 6-8-1986, the petitioners received a letter from the Estate Officer of the respondents informing that an increase in the rent at the rate of 15% had been approved and the department had decided to give the rent at the rate of Rs. 4/- per sq.ft. excluding taxes. The petitioners did not accept the rent offered by the Estate Officer of the respondents and demanded rent at the rate of Rs. 8/-per sq. ft. exclusive of municipal taxes. The petitioners thereafter wrote a number of letters from time to time asking the respondents to fix the lease rent by mutual consent, in accordance with Clause 4 of the agreement or to vacate the premises. In reply, the petitioners were informed by the Senior Finance Manager (TR) by a letter dated 14-9-1986 that certain guidelines were prescribed recently and communicated to the General Manager Telephones, Bombay and the petitioners were requested to contact the said General Manager. In reply, the petitioners were informed by the Senior Finance Manager (TR) by a letter dated 14-9-1986 that certain guidelines were prescribed recently and communicated to the General Manager Telephones, Bombay and the petitioners were requested to contact the said General Manager. The petitioners met the General Manager on 21-9-1987 where they were informed that the report had been forwarded to the Managing Director of the Mahanager Telephone Nigam but nothing was heard from him. Thereupon, the petitioners wrote a letter being letter dated 29-9-1987, to the Director General, Department of Tele-Communication, New Delhi wherein all facts and circumstances were set out in details and a request was made to him to direct the Managing Director and General Manager of the Mahanagar Telephone Nigam to honour the provisions of the agreement between the petitioners and the Union of India. In reply, the petitioner received a letter dated 19-10-1987 from the Senior Finance Manager (TR), New Delhi, by which it was informed that the increased rent at the rate of Rs. 4/- per sq. ft. had been applied to them on the basis of General guidelines followed by the public sector undertakings in the country and that further increases as requested could not be agreed to. By another letter dated 23-12-1987, the petitioners were informed by the Estate Officer of the respondents that as per the revised guidelines received from the Corporate Office, it was decided to offer an increase of 25% on the existing rent after expriry of the lease period and that further details thereof would be communicated in due course. 3. The petitioners thereafter served legal notices on the respondents from time to time. In reply, they were intimated by the Estate Officer, Mahanagar Telephone Nigam Ltd. by a letter dated 22-11-1988 that their demand for revision of rent to Rs. 8/- per sq.ft. and Re. 1/- towards service charges was regretted by the competent authority. They were asked to intimate their acceptance for 25% increase on the rent that existed before the expiry of the first lease period i.e. 12-2-1986. It is under these circumstances that the petitioners approached this Court by filing the present writ petition. 4. The grievance of the petitioners is that fixing the rate of enhancement of rent at 25% of the pre-existing rate unilaterally is most arbitrary and violative of Article 14 of the Constitution. It is under these circumstances that the petitioners approached this Court by filing the present writ petition. 4. The grievance of the petitioners is that fixing the rate of enhancement of rent at 25% of the pre-existing rate unilaterally is most arbitrary and violative of Article 14 of the Constitution. Further submission of the petitioners is that the respondent No. 1, which is the Union of India and respondent No. 2 which is an instrumentality of the State within the meaning of Article 12 of the Constitution, are bound to act reasonably and fairly. In the instant case, the actions of the respondents, according to the petitioners, are most unreasonable and arbitrary. There is no justification for the respondents to arbitrarily and unilaterally put a ceiling of 15% or 25% on the revision of rent. The undisputed position is that in terms of the agreement on the strength of which they have extended the term of the lease, they are obliged to settle the rent for the extended term by mutual discussion with the petitioners, in the light of the prevalent rates at the relevant time. 5. It was pointed out by the counsel for the petitioners that the respondent No. 2 had, in fact, appointed a Committee known as Fair Rent Committee to examine the prevalent market rate of rent and to recommend the rate of rent to be fixed for the extended term of lease of the premises of the petitioners. The said Committee, according to the petitioners, submitted a report recommending rent @ Rs. 7,47 per sq. ft. excluding municipal taxes but including service charges. Learned Counsel submits that, in that view of the matter, the respondents were bound to accept the report of the Committee which was constituted by the respondents themselves comprising of its own officers for the particular purpose and to pay rent to the petitioners for the extended term of the lease at the rates recommended by it. It is also contended that the respondents themselves and various public sector undertakings have taken on rent similar premises in close proximity to the premises in question at rates of rent ranging between Rs. 21/- and Rs. 25/- per sq. ft. per month. Instances of such leases have been set out in the affidavit. 6. It is also contended that the respondents themselves and various public sector undertakings have taken on rent similar premises in close proximity to the premises in question at rates of rent ranging between Rs. 21/- and Rs. 25/- per sq. ft. per month. Instances of such leases have been set out in the affidavit. 6. In reply, on behalf of the respondent No. 2, an affidavit has been filed by Shri N.G. Pujar, AGM (SC A) c/o the General Manager (East), Mahanagar Telephone Nigam Limited, Vikhroli. In the said affidavit, it is fairly admitted that the respondents have taken similar premises on lease at the rate of Rs. 22/- per sq. ft. It is stated in the affidavit as follows : " I admit that the respondent may have similar premises at the rate of Rs. 22/- per sq. ft., but those are new premises and agreement may have been executed recently." It appears that earlier also an affidavit had been filed on 5-2-1990 on behalf of the 2nd respondent by Shri V. Lakshmanarao, Estate Officer. In the said affidavit, the fact of constitution of Fair Rent Committee and submission of the report has not been denied. What has been stated is that all that being an internal matter of Mahanagar Telephone Nigam, they are not bound to furnish a copy thereof to the petitioners. 7. I have heard the counsel for the petitioners as well as the counsel for the respondents. In course of hearing, the learned Counsel for the petitioners produced a copy of the Fair Rent Committee report. I asked the learned Counsel for the respondents to produce the relevant records to enable this Court to verify the correctness of the statements made on behalf of the petitioners in regard to the report of the Fair Rent Committee and other matters connected therewith. The learned Counsel very fairly produced the entire records of the Telephone Nigam in regard to the premises in question. On perusal of the same, I find that the contentions of the petitioners in regard to the constitution of the Fair Rent Committee and its report are correct. The learned Counsel very fairly produced the entire records of the Telephone Nigam in regard to the premises in question. On perusal of the same, I find that the contentions of the petitioners in regard to the constitution of the Fair Rent Committee and its report are correct. Clause 4 of the agreement of the lease, as earlier indicated, gives option both to Union of India and the petitioners to extend the lease by 41/2 years subject to same Terms and Conditions except the rate of rent which has to be decided mutually and after reviewing the prevailing market rate at that time. The petitioners made the demand for revision of rent on the basis of prevailing market rate. The minutes of the Fair Rent Committee meeting which considered the question of fixation of rent for the premises in question is at page 18-1C of the file of the respondent No.2. It appears that the Committee comprised of Shri A.K. Jain, AM(E) as Chairman and Ms. Sadhana Dikshit, DFA and Shri D. Someswara Rao, KE Telecom Civil Dn. III as members. 8. The matter was considered by DCM(A) and he put up a note dated 10-7-1987 to the following effect which is at page 19/c. No.AEO/BLDG/1-90 II A general case regarding revision of rent on rented buildings from Bombay Telephones was referred recently to the Corporate Office for issuing policy decisions at 45/C. This was done after reference to the Law Ministry and also the Solicitors of MTNL for a particular case for which revision of rent was asked for by the landlord. The case was discussed by MD with GM and Addl. GMs in Bombay. Based on the discussions the following guidelines are proposed : 1. Renting of premises will be resorted only if it is unavoidable. 2. Normally revision of rent will not be accepted but upward revision of taxes under the Bombay Rent Control Act should be paid. 3. However, in cases where there is specific reference of the increase in rent under the terms of the agreement after obtaining the legal opinion from the Solicitors about the necessity for increase the revision will be done. The increase may be limited to 15% in case the revision is to be made after 3 years and 25% if the revision is to be made after 5 years. This may please be approved. The increase may be limited to 15% in case the revision is to be made after 3 years and 25% if the revision is to be made after 5 years. This may please be approved. Sd/- 10.7 DCM (A) Below this note, is another note, must be from some higher up, which reads : " In case of public sector undertaking e.g. TCIL we never revised the rent on the basis of Market rent. We followed strictly the conditions laid down in the lease deed. If in this lease deed nothing is mentioned about increase of rent either by fixed amount or some percentage, we have followed an increase of 15% at the end of the lease period and we offered this increase to the landlord. Whether he accepts it or not we are covered under the Rent Control Act. There is no question of F.R.C.G.M. Telephones may follow this procedure. No accommodation should be vacated. If any Court case comes, we shall fight the case in the Court. These guidelines may be followed till a comprehensive letter is recd. from the corporate office. Sd/- 11-7-86. sd/- sd/- G.M./ Add.G.M. 9. It is stated by the learned Counsel for the respondent No. 2 that the above note was forwarded by the Additional General Manager of the Nigam to its Managing Director at New Delhi. It may be pertinent in this connection to set out a letter from Shri P.D. Garg, Additional General Manager (R), Mahanagar Telephone Nigam, Bombay dated 18-5-1987 addressed to the Managing Director of the Nigam at New Delhi, which sets out the entire facts of the case. This letter was followed by a communication dated 30-5-1987 from Sr. Finance Manager (TR) addressed to the General Manager, Telephones, Bombay wherein the procedure to be followed in the matter of rent of rented buildings, which had been approved by the Board, was communicated. This letter reads : Sub : Enhancement of Rent : Ashrafi Mahal, 154, LBS Marg, Kurla, Bombay. Please refer to your letter No. AEO/BLDG/1-140 dated 18-5-1987 on the above subject. The policy in respect of revision of rent has since been decided and necessary guidelines are being issued separately vide letter of even number dated 29-6-1987. The above case may be dealt with accordingly and further action taken in the matter. Please refer to your letter No. AEO/BLDG/1-140 dated 18-5-1987 on the above subject. The policy in respect of revision of rent has since been decided and necessary guidelines are being issued separately vide letter of even number dated 29-6-1987. The above case may be dealt with accordingly and further action taken in the matter. The Directorate may also be informed of the decision taken in the matter in due course. Sd/- ( H.V. Dasan ) Sr. Finance Manager (TR) 10. The learned Counsel for the respondents fairly stated before this Court that there is no dispute either about Clause 4 of the lease agreement or about the various letters addressed by the petitioners to the respondent No. 2 or about the report of the Fair Rent Committee. There is also no dispute about the fact that the Fair Rent Committee considered the question of revision of rent specifically in respect of the premises in question and recommended rent of Rs. 7/- per sq. ft. of built up area excluding municipal taxes. The only submission of the learned Counsel for the respondent No. 2 is that it was merely a recommendation which was not binding. The Fair Rent Committee submitted its report to the competent authority, who had the power to take a decision in the matter of enhancement in terms of the report. The competent authority did not approve the report as it did not find it necessary to refix the rent in the light of prevailing rent. On the other hand, guidelines were forwarded in this regard which clearly provide that the enhancement shall be restricted to 15% of the existing rent. Therefore, the respondent No. 2 had no option but to abide by it. It is also submitted that the ceiling was raised to 25% which accordingly was offered to the petitioners. The learned Counsel, therefore, submits that no fault can be found with the actions of the respondent No. 2 in the instant case. It is also submitted that in any view of the matter, the dispute regarding fixation of rent being a contractual dispute, the petitioners should have gone to the Civil Court to enforce their legal rights instead of approaching this Court under Article 226 of the Constitution. This writ petition, according to the learned Counsel for the respondents, should be dismissed on that count itself. 11. This writ petition, according to the learned Counsel for the respondents, should be dismissed on that count itself. 11. The learned Counsel for the petitioners, on the other hand, submits that, in the instant case, the petitioners are aggrieved, not only by the breach of the terms of the contract but also by the most arbitrary and capricious action of the respondents, one of which is Union of India and the other a State within the meaning of Article 12 of the Constitution and, as such, this Court is the most appropriate forum for redress of its grievances. In support of his contention, reference was made to a decision of this Court dated 21-9-1983 in (Selecha Cables (Pvt.) Ltd. v. The Minerals and Metals Trading Corporation of India Ltd. ( A Govt. of India Undertaking))1, Writ Petition No. 520 of 1981 wherein Pendse, J., dealing with similar situation observed as follows: " It is undoubtedly true that the contractual obligations are normally not enforced by the Court while exercising writ jurisdiction, but in my judgment, it is not fair for the respondent No. 1 to raise such contention when there is no defence whatsoever for the action of respondent No. 1" 12. I have carefully considered the rival submissions in regard to maintenability of the present writ petition. It is true that writ courts do not entertain disputes arising out of contracts, even if one of the contracting parties happens to be the State or its instrumentality. But it is equally true that the State or any authority within the meaning of Article 12 of the Constitution cannot act arbitrarily even in contractual matters. As a natural corollory, whenever there is any arbitrariness in government action, such action would be open to judicial review under Article 226 of the Constitution on the ground of violation of Article 14. Judicial review of an arbitrary State action cannot be denied to a citizen merely because such action pertains to some contractual obligations. Moreover, this writ petition was admitted in the year 1988 and interim relief also given to the petitioners. The matter has now reached final hearing after long five years. At this juncture preliminary objection has been raised on the ground of maintainability of this petition. Moreover, this writ petition was admitted in the year 1988 and interim relief also given to the petitioners. The matter has now reached final hearing after long five years. At this juncture preliminary objection has been raised on the ground of maintainability of this petition. In my opinion, it will not be just and proper after such long lapse of five years to allow the respondents to raise preliminary objection in regard to the maintainability of the petition and to relegate the petitioners to the Civil Court for relief, more so, in a case like the present one, where there is no controversy whatsoever either about the agreement or the relevant clause thereof or its interpretation. In that view of the matter, I do not find any merit in the preliminary objection of the learned Counsel for the respondents in regard to maintainability of this writ petition and the same is, therefore, rejected. 13. Coming to the merits, I find it is one of those cases, where the State is conducting itself like an ordinary litigant. There is no factual dispute in this case. The premises in question was taken by the State on lease for a period of five years from the petitioners, who are ordinary citizens. While taking the premises on lease, the State undertook to pay the enhanced rent which was to be fixed by mutual consent keeping in view the prevailing market rate, if it wanted to exercise its option to extend the term of the lease by another 41/2 years. When the original term of the lease expired and the option to extend the term of the lease by 41/2 years was exercised by the State, it took up the matter of revision of rent in terms of its undertaking and formed a committee of three of its very senior and responsible officers to determine the rent on the basis of prevailing market rate. It may be pertinent to mention that this act on the part of the respondents itself was not fair because, the petitioners, who had a right to be consulted in the matter, were neither taken in the Committee nor in any way taken into confidence. The whole exercise was done at the instance of the respondents by its own officers. The petitioners had no say in the matter. The whole exercise was done at the instance of the respondents by its own officers. The petitioners had no say in the matter. However, even the Committee, comprising of its own officers, arrived at a finding that considering the prevailing rates, revised rent should be Rs.7.47 per sq.ft. but recommended Rs.7/- per sq.ft. It is this report which was forwarded to the competent authority. The said authority, instead of acting on it, turned down the same on the plea that the respondents were not bound to revise the rates on the basis of prevailing market rate and laid down a policy not to enhance it more than 15% of the existing rent. I do not find any rationale behind such unreasonable attitude of the respondents and consequent refusal to accept the recommendation of its own Fair Rent Committee. It might have taken any decision it deemed fit in regard to future leases but it had no right, by its own unilateral decision, to back out of its commitment to the citizen made in the past. 14. My attention was drawn to a letter dated 8-6-1993 written by the Company Secretary of the Nigam to the General Manager (Technical) with reference to this writ petition pending in the High Court wherein the following direction was given : Sub : HIGH COURT WRIT PETITION NO. 3627 of 1988 - Prakash T. Lalwani others v. MTNL. Dear Sir, The entire matter relating to the aforesaid case has been reconsidered by the Management and it has been decided that we may continue to defend our case in the High Court and await the judgment of the Honble Court instead of opting for negotiations/compromise with the party including the possibility of appointment of arbitrator in this regard. You may, therefore, advise our counsel at Bombay, accordingly." The above letter is an indication of the attitude of the functionaries of the State in disputes between the State and its citizens, which is really distressing. Such approach of the State or its functionaries is not in tune with the spirit and the preamble of the Constitution. Ours is a country governed by the rule of law. We have a written Constitution by which the people of India resolved to secure to all its citizens, inter alia, "justice, social economic and political". Such approach of the State or its functionaries is not in tune with the spirit and the preamble of the Constitution. Ours is a country governed by the rule of law. We have a written Constitution by which the people of India resolved to secure to all its citizens, inter alia, "justice, social economic and political". In dispute between the State and the citizens, the State is expected to do what is just and fair to the citizens. It must thrive to secure to the citizens all that is stipulated in the Constitution. It should maintain its majesty. While contesting cases before the courts, it should not behave like ordinary litigants and take all possible defences to defeat the claim of the adversary on one plea or the other. In fact, the State should not treat itself as an adversary in the ordinary sense of the term. It should always be fair to the citizens - ever ready to pay their just and lawful dues at any stage without forcing them to go to courts for redress and/or waiting for the outcome of the litigation. The pendency of litigation should not come in the way of settlement of the claim once it is found to be just and correct. Let it not be forgotten that technical defences or delaying tectics undermine the credibility and prestige of the State and bring it down to the level of an ordinary litigant. 15. The case before me is one of such cases where the State is not behaving like a State. Despite the admitted factual position that (1) it is obliged to revise the rent considering the prevailing market rent (2) that the Fair Rent Committee, constituted by it comprising of its own officers had recommended revision of rent to Rs. 7/- per sq.ft. and (3) that it has itself taken similar accommodation on rent even at the rate of Rs. 20-22 per sq.ft., it refused to pay the revised rent for the extended term of the lease at the rate of Rs. 7/- per sq.ft. as recommended by the Fair Rent Committee. Such action is most arbitrary and unreasonable and cannot be sustained. There is absolutely no justification for the refusal of the respondents to pay the rent to the petitioners at the rate recommended by the Fair Rent Committee for the extended term of the lease commencing from 13-2-1986. 7/- per sq.ft. as recommended by the Fair Rent Committee. Such action is most arbitrary and unreasonable and cannot be sustained. There is absolutely no justification for the refusal of the respondents to pay the rent to the petitioners at the rate recommended by the Fair Rent Committee for the extended term of the lease commencing from 13-2-1986. I accordingly direct the respondent No. 2 to pay rent to the petitioners in respect of the premises in question at the rate recommended by the Fair Rent Committee. The payment must be made within three months from today. 16. In the result, this writ petition is allowed to the extent indicated above. 17. Under the facts and circumstances of the case, I make no order as to costs. Petition allowed.