Chevalier Enterprise v. State of Assam — 1996 DIGILAW 267 (GAU)

D. N. Baruah, J.— This appeal is directed against the common judgment and order dated 29.1.96 passed by the learned Single Judge of this Court in Civil Rule Nos. 1601 of 1994 and 1703 of 1994 (1996 (1) GLJ469) dismissing the writ petitions and upholding the settlement order passed in favour of 5th respondent in the Civil Rules. 2. Facts for the purpose of disposal of this writ appeal (arising out of Civil Rule No. 1601 of 1994) are as follows : Proprietor of appellant (writ petitioner in Civil Rule No. 1601 of 1994 is a young educated person doing excise business since 1987. At the material time he had been carrying on business of warehouse for supply of Potable Alcohol/Rectified Spirit (Grade I) (hereinafter referred to as 'the spirit') to the'satisfaction of the authority concerned. The Commissioner of Excise, Assam - 4th respondent issued a Notice Inviting Tender (for short, NIT) dated 25.8.93 for supply of spirit to different warehouses in Assam, namely, Tinsukia Warehouse, Jorhat Warehouse and Nazira Warehouse for a period of three years. Pursuant to the said NIT the appellant submitted tender with requisite documents for supply of spirit to Jorhat Warehouse in the district of Jorhat. The appellant quoted Rs. 13.20 per LPL. Other persons including the 5th respondent also submitted their tenders for supply of spirit to the said Jorhat Warehouse. The last date for submission of tender and opening of the same was fixed at 2 PM on 5.11.93 in the office of the Commissioner of Excise, Assam. On opening the tender it was found that there were altogether 18 tenderers who submitted their tenders for the said contract. The lowest rate quoted was Rs.9.10 per LPL and the highest was Rs. 16.30. The 5th respondent quoted Rs.15.25 per LPL which was much higher than that of the appellant/There was a difference of Rs.2.05 between the rates quoted by the appellant and the 5th respondent. Particulars to be specified in the tender and the documents to be annexed therewith were mentioned in the NIT. Mention was also made in the NIT that the Government of Assam reserved its right to accept or reject any or all the tenders. Particulars to be specified in the tender and the documents to be annexed therewith were mentioned in the NIT. Mention was also made in the NIT that the Government of Assam reserved its right to accept or reject any or all the tenders. In clause 16 of the NIT it was specifically mentioned that the Government of Assam reserved its right to reduce or increase proportionately the contract rate during the currency of the contract period if and when the cost price and/or duties etc on receipt escalated or came down as the case might be in the exporting States. Each tenderer was required to deposit a sum of Rs. 10,000 as earnest money. The appellant states that at the time of submission of the tender the rate of ex-factory cost of the spirit was Rs.7.87 per LPL. The total price including export fees, 4% CST, transport charges including miscellaneous expenses with bank interest came to Rs.12.76 per LPL. Therefore, the rate quoted by the appellant showed a net profit of Rs.0.44 per LPL i.e. Rs.44,000 per month for 1,00,000 per LPL. The appellant also states that at the relevant time the distellary cost was Rs. 13.50 per BL. The financial position and other eligibility of all the tenderers were enquired into and the appellant was found financially sound and there was nothing adverse against the appellant However, the authorities awarded the contract to the 5th respondent. According to the appellant this was arbitrary and in violation of the rules of the Assam Excise Rules, 1945 (hereinafter referred to as the Rules, 1945) more particularly Rule 93 of the Rules, 1945. The appellant also states that the principles of natural justice was grossly violated while awarding the contract to the 5th respondent. Besides, the authorities also had not shown any reason whatsoever while rejecting the tender of the appellant. This was contrary to the Rules and by awarding the contract the State would incur loss to the extent of Rs.2.05 per LPL. The appellant further contends that it having quoted lower price than that of the 5th respondent it was unfair and unreasonable to award the contract to the 5th respondent. According to the appellant it was arbitrary and discriminatory. Hence the appellant moved the writ petition (Civil Rule No. 1601 of 1994) on 2.5.94. On 2.5.94 the Court granted stay of operation of the order awarding contract. According to the appellant it was arbitrary and discriminatory. Hence the appellant moved the writ petition (Civil Rule No. 1601 of 1994) on 2.5.94. On 2.5.94 the Court granted stay of operation of the order awarding contract. In the above Civil Rule the 5th respondent filed an affidavit-in-opposition. In the said affidavit the 5th respondent did not, however, specifically deny the averments made in the writ petition, but stated that the obligations levelled by the appellant against the impugned order of awarding the contract were matter of record. According to the 5th respondent, the rate quoted by it i.e. Rs. 15.25 per LPL was a workable and viable rate. Therefore, according to the 5th respondent, awarding of contract to it was reasonable and fair. Against the said affidavit-in-opposition, the appellant filed a reply affidavit In the reply affidavit, the appellant states that the rate quoted by the 5th respondent i.e. Rs. 15.25 per LPL was based on surmises and conjectures and not based on any reliable data. It is also stated by the appellant in the reply affidavit that the tenders were invited in the month August, 1993 and the appellant submitted tender on 5.11.93 on the basis of prevalent rate of spirit. At that time, according to the appellant, the ex-factory cost of spirit was Rs.7.87 per LPL and, therefore, the total price including import fee, transport charges and other expenses came to Rs.12.76 per LPL. According to the appellant this was just and proper. There was nothing wrong in it. It is also mentioned that at mat time the price of spirit in the importing State was Rs. 13.00 per BL i.e. Rs.7.87 per LPL and on 6.11.93 the price was Rs.13.50 per BL i.e. Rs.8.18 per LPL and, as such, the statement made by the 5th respondent that his quoted price of Rs. 15.25 per LPL as workable and viable was not sustainable. It was further stated in the reply affidavit that the 5th respondent had been supplying spirit at Jorhat Warehouse till 30.4.94 at Rs.20.51 per LPL i.e. at a difference of Rs.5.26 per LPL. According to the appellant, the 5th respondent was all along supplying spirit at a much higher rate causing serious loss to the State Exchequer. It was further stated in the reply affidavit that the 5th respondent had been supplying spirit at Jorhat Warehouse till 30.4.94 at Rs.20.51 per LPL i.e. at a difference of Rs.5.26 per LPL. According to the appellant, the 5th respondent was all along supplying spirit at a much higher rate causing serious loss to the State Exchequer. According to the appellant, the tender submitted by it was not at all considered by the authorities as required under the law and no reason was recorded by the authorities for rejecting his valid tender while awarding contract to the 5th respondent at much higher rate. According to the appellant, awarding of the contract at much higher rate was in malafide exercise of the power. The respondent authorities, however, did not controvert the averments made by the appellant by filing an affidavit-in-opposition. During the course of hearing the respondent authorities were directed to produce the record relating to award of contract. On behalf of the 4th respondent a report dated 7.4.94 i.e. just before the impugned order of settlement dated 30.4.94 was submitted before the Court. The said report, according to the appellant, was not complete and it was a purported recommendation of the Commissioner of Excise to the State Government just before the acceptance of the tender by the State Government. The appellant also states that its financial position was duly scrutinised and was found satisfactory. There was nothing against the appellant. However, ignoring all these facts the authority awarded the contract for supply of spirit to Jorhat Warehouse by the 5th respondent. The petition was heard by the learned Single Judge and after hearing the parties the learned Single Judge dismissed the writ petition holding, inter alia, that the action of the respondent authority was not arbitrary, unreasonable and it was also not violative of equality clause of Article 14 of the Constitution. Hence the present appeal. 3. We heard Mr. JP Bhattacharjee, learned senior counsel assisted by Mr. C. Baruah, learned counsel apearing on behalf of the appellant, Mr. BP Borah, learned Senior Government Advocate, Assam appearing on behalf of respondent Nos. 1 to 4 and Mr. DP Chaliha, learned counsel appearing on behalf of respondent No.5, 4. Mr. Hence the present appeal. 3. We heard Mr. JP Bhattacharjee, learned senior counsel assisted by Mr. C. Baruah, learned counsel apearing on behalf of the appellant, Mr. BP Borah, learned Senior Government Advocate, Assam appearing on behalf of respondent Nos. 1 to 4 and Mr. DP Chaliha, learned counsel appearing on behalf of respondent No.5, 4. Mr. Bhattacharjee submitted that the learned Single Judge earred in law in dismissing the petition inasmuch as the appellant having quoted lower price and having all the requisite fitness, in all fairness, the contract ought to have been awarded to it. Besides, the report submitted by the 4th respondent indicated that the appellant was otherwise fit for awarding the contract. Mr. Bhattacharjee further submitted that the appellant's case was rejected by the settling authority without proper application of mind. The order awarding contract to the 5th respondent discarding the claim of the appellant was without any reason, at least the order did not indicate that. The appellant having the financial capability and there being nothing against the appellant, the claim of the respondent was unreasonable and unfair and, therefore, it is liable to be set aside and quashed. The authority made out a case of viability of rate without there being any material before the authority. While awarding contract the authority took into consideration some matters which were not at all relevant for the purpose of determining the viability of rate and, therefore, the entire action of the respondent authority in awarding the contract to the 5th respondent was arbitrary and unreasonable. 5. Mr. BP Borah, learned Senior Government Advocate, Assam appearing on behalf of respondent Nos. 1 to 4 strenuously suppported the action of the respondent authority. Mr. Borah submitted that the counsel apppearing on behalf of the appellant most unreasonably criticised the report of the Commissioner of Excise dated 7.4.94 in respect of recommendation for award of contract for wholesale supply of spirit to the Excise Warehouse at Jorhat. He had drawn our attention to a portion of the report which is quoted below: - "In examining all the pros and cons of the issue, I am of the opinion that the offered rate of the spirit contract should be between Rs. 14.50 to 15.49 per LPL. Besides the contractor to whom the contract shall be offered should be of sound financial ground and experienced in this line. 14.50 to 15.49 per LPL. Besides the contractor to whom the contract shall be offered should be of sound financial ground and experienced in this line. As because, consequent upon rescinding the Ethyl Price Control Order 1971 by Govt of India, there is no allocation of spirit for this State. Our State is a deficit one in respect of alcohol. It should be the primary obligation of the contractor to effect regular flow of spirit supply at his initiative from outside the State." Drawing our attention to the above portion of the report, learned Senior Government Advocate submitted that while making recommendation the Commissioner also relied upon the report of the Inspector of Excise, Jorhat who certified that the 5th respondent was competent and capable and, therefore, the contract was awarded to it. Regarding the rate viability also learned Senior Government Advocate submitted that the Commissioner of Excise while calculating the price of spirit took into consideration different bill vouchers received from the distillary outside the State and thereafter came to the conclusion that the rate quoted by the 5th respondent was viable. Accordingly contract was awarded. According to the learned Senior Government Advocate there was nothing wrong in awarding the contract to the 5th respondent and the action of the respondent authority was just and fair. Learned Senior Government Advocate also submitted that at the time of admission of this appeal on 11.3.96 this Court directed the Commissioner of Excise to file affidavit giving all the rates at which the contract for supply of spirit to the Warehouse in other districts of Assam, Pursuant to the aforesaid direction the Commissioner of Excise furnished the rates as quoted below: 1. Tinsukia Excise Warehouse : Rs. 15.71 per LPL. 2. Jorhat Excise Warehouse : Rs. 15.25 per LPL. 3. Najira Excise Warehouse : Rs.15.25 per LPL. 4. Silchar Excise Warehouse : Rs.20.66 per LPL. 5. North Lakhimpur Excise Warehouse : Rs. 18.10 per LPL. The learned Senior Government Advocate also submitted that the proprietor of the appellant was also a sitting lessee of North Lakhimpur Excise Warehouse which was settled at Rs. 18.10 per LPL. Taking into consideration all these facts, according to the learned Senior Government Advocate, the rate quoted by the appellant was too low and not viable one. 18.10 per LPL. The learned Senior Government Advocate also submitted that the proprietor of the appellant was also a sitting lessee of North Lakhimpur Excise Warehouse which was settled at Rs. 18.10 per LPL. Taking into consideration all these facts, according to the learned Senior Government Advocate, the rate quoted by the appellant was too low and not viable one. On the otherhand, the rate quoted by the 5th respondent was viable and, therefore, in the public interest the settling authority decided to award the contract to the 5th respondent. In view of the above, according to the learned Senior Government Advocate, this Court, in exercise of the power under Article 226 of the Constitution might not interfere with the said decision. 6. Mr. DP Chaliha, learned counsel apppearing on behalf of respondent No.5 supported the impugned order awarding contract. According to him, the authority after taking into consideration all the relevant factors came to the conclusion that Rs. 14.50 to 15.49 per LPL was the prevalent price of spirit and, therefore, the price quoted by the respondent Rs.15.25 per LPL was just and reasonable price and the settling authority rightly rejected the claim of the appellant/petitioner and awarded the contract to the 5th respondent. The proprietor of the appellant himself had been supplying spirit to North Lakhimpur Warehouse at Rs. 18.10. This indicated that Rs. 13.20 per LPL was on the lower side. Mr. Chaliha further submitted that in awarding the contract the settling authority must have some discretion and this Court in exercise of power under Article 226 of the Constitution might not interfere with the decision of the settling authority. On the whole, Mr. Chaliha had made his submission on the same line as that of learned Senior Government Advocate. 7. On the rival contentions of the parties it is to be seen whether the viable rate as determined by the settling authority at Rs.15.25 per LPL was just and reasonable and whether the settling authority rightly rejected the claim of the appellant/petitioner and awarded the contract to the 5th respondent. 8. It is well established priciple of law that when a State or the instrumentality of a State is engaged in any commercial activity, it is bound by public law limitation. A State or instrumentality of a State does not have unfettered power to award a contract or distribute other largess according to its whims. 8. It is well established priciple of law that when a State or the instrumentality of a State is engaged in any commercial activity, it is bound by public law limitation. A State or instrumentality of a State does not have unfettered power to award a contract or distribute other largess according to its whims. It must not be arbitrary and unreasonable. The action of a State or instrumentality of a State must be fair and informed of reasons. The action of a State of instrumentality of a State in awarding contract or distributing largess is different than that of private individual. A private individual may have the absolute discretion to decide under what circumstances the contract can be awarded because the goal of a private individual is to earn maximum profit, but that may not be so in case of a State or instrumentality of a State. Every action of a State must be in conformity with the principles laid down under Article 14 of the Constitution. It must be fair, reasonable and free from arbitrariness. Therefore, if it is found that the action of a State or its instrumentality in awarding contract is unreasonable or unfair or there is arbitrariness, the Court has no other alternative than to strike it down. 9. In the present case, NIT dated 25.8.93 was issued by the Commissioner of Excise, Assam. In the said NIT various conditions were put. In clause 16 of the said NIT, the Government reserved its right to reduce or increase proportionately the contract rate during the currency of the contract period in the event of escalation or coming down of cost price or duties, etc. Annexure D to the Memo of Appeal is the order issued by the settling authority offering the contract for wholesale supply of spirit to the Excise Warehouse at Jorhat to the 5th respondent at the rate of Rs. 15.25 per LPL for a period of three years from 1.5.94 to 30.4.97. The order, however, does not disclose why the appellant was discarded. Annexure G is the letter from the Commissioner of Excise, Assam to the Secretary to the Government of Assam, Excise Department. In the said letter the case of the appellant as well as of 5th respondent has been mentioned. In respect of appellant it has been mentioned that the firm had deposited Rs. Annexure G is the letter from the Commissioner of Excise, Assam to the Secretary to the Government of Assam, Excise Department. In the said letter the case of the appellant as well as of 5th respondent has been mentioned. In respect of appellant it has been mentioned that the firm had deposited Rs. 10,000 and had furnished upto date Income Tax and Sales Tax Certificates and had affixed court fee stamps of Rs.8.25. According to the Commissioner, the financial position of the appellant at that time seemed to be quite good as reported by the Deputy Superintendent of Excise, Guwahati (Sadar). The firm had also submitted a photo copy of UCO Bank certificate issued by the Chief Manager of the Bank undertaking to give Bank guarantee to the extent of Rs. 10 lacs and cash credit to the extent of Rs.50 lacs for the purpose of supplying the spirit. The letter also suggests that the proprietor of the appellant firm was not involved in any anti State activity and his integrity and suitability was beyond doubt as reported by the Superintendent of Police. So far the legal standing and the permanent residentship, the letter indicates that the proprietor of the appellant firm was a permanent resident of Rajgarh Road, Bhangagarh, Guwahati. The firm had been functioning since 1992 and its local standing was quite genuine as reported. Similarly in respect of 5th respondent, the letter indicates that the firm also complied with the requirement of depositing Rs. 10,000 as earnest money, furnishing upto date Income Tax and Sales Tax clearance certificates. As regards the financial position, the letter indicates that the 5th respondent had Rs.2,40,656.59 as on 20.11.93 in its current account with State Bank, Jorhat. The stock of the firm at Excise Warehouse, Jorhat on 1.12.93 was 1,09,749.2 LPL the value of which was Rs. 11,90,803.70. The firm had also an outstanding balance of Rs.22,95,746.00 lying with the Government for cost price of Rectified Spirit supplied to Jorhat Excise Warehouse. The letter indicates that the 5th respondent was also financially sound. As regards integrity and suitability, the letter suggests that the firm deserved recommendation. From the aforesaid letter it appears that both the appellant and the 5th respondent were financially sound and capable of supplying spirit. Hie concluding paragraph of the said letter suggests that taking into consideration the actual price of spirit ought to have been Rs. As regards integrity and suitability, the letter suggests that the firm deserved recommendation. From the aforesaid letter it appears that both the appellant and the 5th respondent were financially sound and capable of supplying spirit. Hie concluding paragraph of the said letter suggests that taking into consideration the actual price of spirit ought to have been Rs. 14.50 to Rs. 15.49 per LPL and, therefore, the letter suggests that Rs. 15.25 was the viable rate and if the work order was given to the appellant, there was likelihood of default and in that case there would be difficulty because the State itself was in deficit in respect of alcohol. 10. Learned counsel appearing on behalf of the appellant submitted that the appellant at the time of submission of its tenders took into consideration the price prevalent at that time. According to the learned counsel, the price prevalent at the time of submission of the tender was the relevant price and not the price prevalent at the time of offering the contract. But the authority took into consideration the price prevalent at a later stage and, therefore, it was not reasonable. 11. We have gone through the order as well as the report. There is nothing on record to show that Rs. 15.25 i.e the rate quoted by the 5th respondent was viable rate and not the rate quoted by the appellant. The impugned order is absolutely silent. There is nothing on record to show the basis on which the authority came to the conclusion. This aspect of the matter was not considered by the learned Single Judge. In our opinion, the impugned order awarding contract to the 5th respondent was passed ignoring the claim of the appellant who quoted lower price. Normally for the purpose of supply, a State or its instrumentality should make endeavour to receive goods at a lower price. However, if for any reason the lower price was not acceptable it ought to have been spelt out by the settling authority and ought to have been reflected in the impugned order of settlement or on record. We do not find any plausible ground for rejecting the claim of the appellant and giving the contract to the 5th respondent. According to us this was an arbitrary exercise of power which is not expected of a State or its instrumentality. We do not find any plausible ground for rejecting the claim of the appellant and giving the contract to the 5th respondent. According to us this was an arbitrary exercise of power which is not expected of a State or its instrumentality. Accordingly, we disagree with the conclusion arrived at by the learend Single Judge and we set aside the order of the learned Single Judge and also the order awarding the contract to 5th respondent and send back the matter to the settling authority with a direction to it to make fresh settlement after taking into consideration all the aspects and pass a reasoned order. In the entire fact and circumstances of the case we make no order as to costs.