Holding

Administrative action is reviewable only on the grounds of illegality, irrationality or procedural impropriety, and in the absence of proof of mala‑fide or irrationality the DDA’s decision stands.

Summary

The Delhi Development Authority (DDA) invited tenders for a water‑pumping project. Mis UEE Electrical Engineering (P) Ltd., a successful bidder, had its director assault a DDA employee, leading the DDA to issue a show‑cause notice, blacklist the company for five years and award the contract to another firm. The Delhi High Court held that the director’s misconduct could not be imputed to the company and set aside the DDA’s action. On appeal, the Supreme Court examined the scope of judicial review of administrative action, reiterating that review is limited to illegality, irrationality or procedural impropriety and that bad‑faith must be clearly proved. It found no mala‑fide or irrationality in the DDA’s decision, held the High Court’s judgment indefensible, allowed the appeal and ordered the writ petition to be transferred to the High Court. Costs were awarded to the DDA.

Issues considered

The DDA’s decision to blacklist and reject the tender of Mis UEE Electrical Engineering (P) Ltd. is subject to judicial review.
Whether the director’s personal misconduct can be attributed to the company for purposes of disqualification.
What are the permissible grounds for judicial review of administrative action – illegality, irrationality, procedural impropriety – and whether mala‑fide must be established.
Whether the DDA acted with bad faith or irrationality in refusing to award the contract.

Legislation cited

Indian Penal Code, 1860s. 186, s. 332, s. 353

Subjects

administrative lawjudicial reviewillegalityirrationalityprocedural improprietymala fideblacklistingpublic procurementdirector liabilityvicarious liability

Judgment

!"

A DELHI DEVELOPMENT AUTHORITY AND ANR.
v.
MIS. UEE ELECTRICAL ENGG. (P) LTD. AND ANR.

MARCH 19, 2004

B (S. RAJENDRA BABU, ARIJlT PASA YAT AND G.P. MATHUR, JJ.]

Administrative Law:

Administrative action-Judicial review-Grounds for-Development
C Authority invited tenders for certain work-A company also submitted a
tender-Subsequently, the Director of the said company went to the office of
the Authority and assaulted one of its employees for not handing over certain
Jiles-The Authority, therefore, blacklisted the company and awarded the
contract to another company-High Court held that the Director and the
D company were two separate legal entities and the Director's unbecoming act i
should not stand in the way of awarding the contract to the compa1'.v-
Correctness of-Held: Administrative action is subject to control by judicial
review on the grounds of "illegality", "irrationality" and "procedural
impropriety"-The test is to see whether there is any infirmity in the decision-
making process and not the decision itself-Jn the instant case the Authority
liad not acted in a mala fide manner or with oblique motives-Hence, the
action of the Authority not open to judicial review-High Court judgment set
aside.

The appellant-authority invited tenders for the supply and
installation of Clear Water Boosting Pumping Station. The respondent No.
1- company also submitted a tender. Subsequently, the Director of
respondent No. I - company went to the appellant's office and assaulted
one of its employees for not handing over certain files.

The price bid was opened and the respondent No. I - company was
declared a successful bidder. However, the Works Advisory Board of the
appellant - Authority, on the recommendation of the Contractor
Registration Board, decided not to consider the tender of respondent No.
I - company and awarded the contract to respondent No. 2. The appellant
- authority, after issuing a show cause notice to the respondent No. I - :ii.

286
D.D.A. v. UEE ELECTRICAL ENGG. (P) LTD. 287
company, blacklisted it for 5 years due to the unbecoming conduct of its A
Director.

Being aggrieved respondent No. I - company filed 'a writ petition
before the High Court challenging the award of the contract to respondent
No. 2. The High Court held that the Director of the respondent No. I -
company and the company itself were two separate legal entities and even B
if any unbecoming act was done by the Director, that should not stand in
the way of the contract being awarded to the respondent No. I - company.
1 .} Hence the appeal. .

On behalf of the appellant, it was contended that the scope of judicial C
review of administrative action was very limited; and that unless there
was a flaw in the decision-making process, there was no scope for any
interference.

Allowing the appeal, the Court

HELD: I. One can conveniently classify under three heads the
D
grounds on which administrative action is subject to control by judicial
)~
review. The first ground is "illegality", the second "irrationality" and the
third "procedural impropriety". [292-BJ

Council of Civil Unions v. Minis fer for the Civil Service, (1984) 3 All. E
ER. 935, referred to.

2.1. Courts are slow to interfere in mattc1·s relating to administrative
functions unless the decision is tainted by any vulnerability such as, lack
of fairness in procedure, illegality and irrationality. Whether the action
falls within any of the categories has to be established. Mere assertion in F
that regard would not be sufficient. [292-C-DJ
·l "'•
2.2. The law is settled that in considering a challenge to
administrative decisions courts will not interfere as if they are sitting in
appeal over the decision. In essence, the test is to see whether there is any
infirmity in the decision-making process and not in the decision itself. G
Union of India v. G. Ganayutham, [1977) 7 SCC 463 and Indian Railway
Construction Co. ltd. v .. Ajay Kumar, [2003) 4 SCC 579, relied on.
~ (292-E-FJ

Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., All
E.R. 682 (KB), referred to. H
288 SUPREME COURT REPORTS [2004) 3 S.C.R.

A 3.1. Doubtless, he who seeks to invalidate or nullify any act or order
must establish the charge of bad faith, an abuse or a misuse by the
authority of its powers. While the indirect motive or purpose, or bad faith
or personal ill-will is not to be held established except on clear proof
thereof, it is obviously difficult to establish the state of a man's mind, for
that is what the employee has to establish in this case, though this may
B sometimes be done. The difficulty is not lessened when one has to establish
that a person apparently acting on the legitimate exercise of power has,
in fact, been acting ma/a fide in the sense of pursuing an illegitimate aim.
It is not the law that mala fide in the sense of improper motive should be
established only by direct evidence. But it must be discernible from the
C order impugned or must be shown from the established surrounding
factors which preceded the order. If bad faith would vitiate the order, the
same can be deduced as a reasonable and inescapable inference from
proved facts. [292-F-H; 293-A-B[

S. Pratap Singh v. State of Punjab, [1964[ 4 SCR 733, relied on.
D
3.2. It cannot be overlooked that the burden of establishing mala
fide is very heavy on the person who alleges it. The allegations of mala
fide are often more easily made than proved, and the very seriousness of l1
such allegations demands proof of a high order of credibility. [293-8-C[

E E.P. Royappa v. State of Tamil Nadu, AIR (1974) SC SSS, relied on.

.
and its Directors are separate entities for certain purposes, in many
.
4. Though in a legalistic sense an incorporated body like a company

companies they act as alter ego. For the acts of the Director, the concept
of vicarious and constructive liabilities operates as far as the company is
F concerned. The acts of the company are done primarily through the
Directors or the employees. [293-C-DI

S. This is not a case where the appellant-Authority can be said to
have acted in a mala fide manner or with oblique motives. If the appellant-
G Authority felt that in view of the background fact, it would be undesirable
to accept the tender, the same is not open tu judicial review in the absence
of any proved mala fide or irrationality. The impugned judgment of the
High Court is indefensible and is set aside. [293-E-FI

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1725 of2004.
G
D.D.A. v. UEE ELECTRICAL ENGG. (P)L TD. [PASA YAT. l.] 289
_,, From the Judgment and Order dated 12.7.2002 of the Delhi High Court A
in C.W.P. No. 6957 of2001.

WITH

W.P. (C) No. 156 of 2003.
B
Avadh Behari Rohtagi, Ms. Jndu Malhotra, Ms. Pooja Chandra, Sanjeev
Malhotra, G.D. Gandhi and P.D. Shanna for the appearing parties.

The Judgment of the Court was delivered by

ARIJIT PASAYAT, J. Leave granted in SLP (C) No. 23987/2002. C
The Delhi Development Authority (herein after referred to as the "DDA")
calls in question the legality of the judgment rendered by a Division Bench
of the Delhi High Court whereby it has held that the act of the appellant in
not awarding contract to the respondent No. I Mis UEE Electricals Engg. P.
Ltd. was not in accordance with law. Though the contract awarded to the D
second respondent was not nullified, it was held by the High Court that the
I ~ first respondent who was deprived of its right was entitled to costs to be paid
by the appellant. Liberty was also granted to the respondent No. I to file a
suit for damages if it so thought appropriate.

Background facts as projected by the appellant ODA which need to be
E
noticed are as follows:

In March 200 I, tenders were invited by the appellant for the supply and
installation of Clear Water Boosting Pumping Station at Command Tank No.
I at Sector-7. Clause I 0 of the Tender Notice indicated that the final decision, F
with respect to acceptance of the tender, rests with the Chief Engineer
(Electrical) and there was no compulsion to accept the lowest tender.. On
21.5.2001 Ashok Sehgal - a Director of the respondent no. I - company went
to the Division Office of the Authority, where one Mr. V.K. Kapoor was
acting as the Assistant Engineer (Electrical), for clearance of his earlier dues.
Aforesaid Mr. Ashok Sehgal insisted that the files should be handed over to G
him which was not done by Mr. V.K. Kapoor. Since the files were not
handed over, Mr. Ashok Sehgal physically assaulted Mr. V.K. Kapoor with
a sharp weapon which caused an injury near the right eye. At about 3.45
P.M., an FIR was lodged by Mr. V.K. Kapoor for alleged commission of
offences punishable under Sections 186, 353, and 332 of the Indian Penal H
290 SUPREME COURT REPORTS [2004] 3 S.C.R.

A Code, 1860 (in short the "!PC") before the Dabri Police Station, Delhi. The
matter was also referred for enquiry to the Executive Engineer (Headquarter)
of DDA. Mr. Ashok Sehgal submitted a letter to the Commissioner of Police
at about 8 P.M. on the same date making allegations against officials of
DDA. On 19.6.2001 Enquiry Officer submitted a report inter alia observing
B that Mr. V.K. Kapoor' s version was correct and that the allegations made by
Mr. Ashok Sehgal appear to be in retaliation. It was found that Mr. Ashok
Sehgal had tried to support his case by producing a medical certificate issued
by a Private Poly Clinic which was not valid for a Medico-legal case. The
further allegation that Mr. V.K. Kapoor demanded bribe from Mr. Ashok
Sehgal was found to be incorrect. The allegation that Mr. Ashok Sehgal was
C physically beaten up by Mr. V.K. Kapoor was also found to be not correct
in view of the statements given by some eyewitnesses. It was, therefore,
recommended that necessary action should be taken by the competent authority.

On 23.7.2001 the price bid, so far as the tender in question, was opened
and the respondent no. 1 was declared to be a successful bidder. However,
D on 28.8.200 I the Project Manager (Electrical) wrote to the Secretary,
Contractor Registration Board requesting for appropriate action against the
respondent No. 1- company in the light of the Enquiry Report referred to
above. lt appears that subsequently action was taken by the Contractor
Registration Board in terms of the Rule 22.3(k) of the Enlistment Rules of
E DDA.

On 25.10.2001 the Works Advisory Board decided that the tender of
respondent No. I should not be considered since show cause notice was
being issued to it. Therefore, other tenderers were called for negotiations to
lower the rates offered. It was also decided that in case the rates were not
F lowered, fresh tender was to be issued.

On 8.11.2001, after consideration of the lowered rates offered the work
was awarded to respondent no. 2 (respondent No. 3 in the writ petition before
the High Court).

G Show cause notice was issued to respondent No. I on 5.12.200 I requiring
it to show cause why it should not be blacklisted by the appellant-Authority.
Reply to the show cause notice was submitted on 13.12.200 I. A Writ Petition
was filed by the respondent No. I questioning award of the contract to
respondent no. 2. By the impugned judgment, the High Court, inter alia,
H held that the Director of the Company and the Company itself are two separate
D.D.A. v. UEE ELECTRICAL ENGG. (P) LTD. [PASAYAT, J.] 291

legal entities and even if any unbecoming act was done by the Director, that A
should not stand in the way of the contract bt:ing awarded to the respondent
No. I- company. Therefore the Writ Application was disposed of with the
directions as noted above.

It appears that subsequently on 14.8.2002 the Contractor Registration
Board debarred the respondent No. I - company and its Director for a period B
of five years. A Writ Petition was filed before the Delhi High Court
challenging the order passed by the Contractor Registration Board. Learned
t> ~ Single Judge quashed the order of the Contractor Registration Board keeping
in view of the impugned judgment dated 12.7.2002. However, liberty was
given to the Appellant-Authority to issue a detailed and reasoned order. It C
appears that subsequently on 3.1.2003 a fresh order, debarring· the respondent
no. I - company and its Director for a period of five years, has been passed.
That is the subject matter of challenge in WP(C) 156 of 2003.

In support of the appeal, learned counsel for the appellant - DDA
submitted that the approach of the High Court is clearly erroneous. The D
scope of judicial review of administrative action is very limited. Unless there
is a flaw in the decision-making process, there is no scope of any interference.
In the instant case all the relevant aspects were taken by the Authority into
account and thereafter the tender submitted by the respondent No. I - company
was rejected. The High Court proceeded on the erroneous premises by
observing that no action for blacklisting the respondent No. I - company was E
taken. This is factually incorrect. In fact the Works Advisory Board took
note of the fact that already recommendation had been made by the Contractor
Registration Board in the matter of blacklisting the respondent No.I - company.
The High Court proceeded is if there were ma/a jides involved and that the
action of the Director of respondent No. 1- company in assaulting an employee F
of the Appellant-Authority and causing serious injuries was not sufficient to
take action against the respondent No. I - Company. Respondent No. I -
Company being an incorporate body who acts through its Directors, when
the act of a Director of the Company itself was found to be objectionable,
attracting criminal action, there was nothing wrong in the Appellant-Authority
deciding not to accept the tender offered by the respondent No. I -Company. G
The High Court was not justified in interfering with the action taken.

Per contra, learned counsel appearing for the respondent No. I -
Company submitted that it has been rightly observed by the High Court that
the respondent No. I - Company and its Directors are separate legal entities. H
292 SUPREME COURT REPORTS (2004] 3 S.C.R.

A Even if it is accepted for the sake of argument that a director of a company
had done some objectionable act, that could not have been considered as a
ground to refuse acceptance of the tender submitted by the respondent No.
I - Company particularly when the prices offered were lowest.

One can conveniently classify under three heads the grounds on which
B administrative action is subject to control by judicial review. The first ground
is "illegality" the second "irrationality", and the third "procedural
impropriety". These principles were highlighted by Lord Diplock in Council
of Civil Unions v. Minister for the Civil Service, (1984] 3 All.ER. 935, .\-- ~
(commonly known as CCSU Case).
c Courts are slow to interfere in matters relating to administrative functions
unless decision is tainted by any vumerability such as, lack of fairness in
procedure, illegality and irrationality. Whether action falls within any of the
categories has to be establishea. Mere assertion in t!iat regard would not be
sufficient.
D
The famous case Associated Provincial Picture Houses ltd. v.
Wednesbwy Corpn. (KB at p. 229: All ER p. 682) commonly known as "The
Wednesbury's-case" is treated as the landmark so far as laying down various
basic principles relating to judicial review of administrative or statutory
direction.
E
The law is settled that in considering challenge to administrative
decisions courts will not interfere as if they are sitting in appeal over the
decision.

These principles have been noted in aforesaid terms in Union of India
F and Anr. v. G. Ganayutham, (1997] 7 SCC 463 and Indian Railway
Construction Co. ltd. v. Ajay Kumar, (2003] 4 SCC 579. In essence, the test
is to see whether there is a~y infirmity in the decision making process and
not in the decision itself.

Doubtless, he who seeks to invalidate or nullify any act or order must
G establish the charge of bad faith, an abuse or a misuse by the authority of its
powers. While the indirec:t motive or purpose, or bad faith or personal ill-will
is nc.t to be held established except on clear proof thereof, it is obviously
difficult to establish the state ofa man's mind, for that is what the employee
has to establish in this case, though this may sometimes be done. The difficulty
H is not lessened when one has to establish that a person apparently acting on
l,

D.D.A. v. UEE ELECTRICAL ENGG. (P) LTD. [PASAYAT, J.) 293
the legitimate exercise of power has, iri fact, been acting ma/a fide in the A
sense of pursuing an illegitimate aim.. It is not the law that mala fide in the
sense of improper motive should be established only by direct evidence. But
it must be discernible from the order impugned or must be shown from the
established surrounding factors which preceded the order. If bad faith would
vitiate the order, the same can, in our opinion, be deduced as a reasonable
and inescapable inference from proved facts. (See S. Pratap Singh v. The B
State of Punjab, [1964] 4 SCR 733. It cannot be overlooked that. burden of
establishing ma/a fides is very heavy on the person who alleges it. The
allegations of ma/a fides are often more easily made than proved, and the
very seriousness of such allegations demands proof of a high order of
credibility. As noted by this Court in E.P. Royappa v. State of Tamil Nadu C
and Anr., AIR, (1974) SC 555.

Though in a legalistic sense an incorporated body like a company and
its Directors are separate entities for certain purposes, in many companies
they act as alter ego. For the acts of the Director, the concep~ of vicarious
and constructive liahilities operates so far as the company is concerned. The D

- acts of the company are done primarily through the Directors or the employees.
In a case like the one at hand, the stand of respondent No. I - Company that
even if one of its Directors has assaulted an employee of the appellant-
Authority, yet it is of no consequence when deciding the tender. application.
The strained relationship between a contractor and the contractee can have its E
implications in working out ihe contract.

This is not a case where the appellant-Authority can be said to have
acted in a mala fide manner or with oblique motives. If the Authority felt that
in view of the background facts, it would be undesirable to accept the tender,
the sanie is not open to judicial review in the absence of any proved mala F
fide or irrationality. The impugned judgment of the High Court is indefensible
and is set aside. The appeal is allowed. Costs made easy.

W.P.(C) No. l 56 of 2003 has been filed by the Company questioning
the decision taken by the Authority to blacklisting it.
G
Learned counsel for the writ petitioner submitted that the petition was
filed in this Court because of the pendency of the SLP. Since we have
• ·;ii.. separately dealt with the SLP, we do not think it to be a fit case where the
writ petition can be entertained directly in this Court.

H
294 SUPREME COURT REPORTS (2004] 3 S.C.R.

A The Writ Petition is transferred to the High Court, so that it can be
registered as a Writ Petition to be dealt with and disposed of in accordance
with law. Ordered accordingly.

v.s.s. Appeal allowed

_)(· .