HAJI T.M. HASSAN RAWTHERversusKERALA FINANCIAL CORPORATION

                       HAJI T.M. HASSAN RAWTHER
                                                                                  A
                                          v.
                  KERALA FINANCIAL CORPORATION.

                             NOVEMBER 17, -1987

            [B.C. RAY AND K. JAGANNATHA SHETTY, JJ.]                              B

           Indian Contract Act, 1872: Auction-Disposal of property by
     State or instrumentality of the State-Resort to private negotiation
     instead ofpublic auction justified in compulsive situations.

          Constitution of India, Article 14: Property owned by State or
     instmmentality of State-sale of-Through public auction or by inviting C
     tenders-Action to be fair and above board-Nothing to be done to give
     impression of bias, favouritism or nepotism.

            The respondent, a State Government Corporation obtained
      decree for certain amount against the appellant and in execution pro- D
      ceedings a tea estate was brought for sale by court auction in 1969, but
      in the absence of a bidder the respondent itself bad to purchase it at a
      higher price, The respondent, however, could take possession of the
      estate only in 1982. It then invited tenders for the sale of the estate. The
·-.J_ appellant offered Rs.6,110,000. The next best offer was for Rs.4,15,550
      and the third for Rs.2,07 ,451. The highest offer was accepted, but the E
      appellant could not pay the amount except the earnest money, even
      after repeated extension of time and offer to receive the balance in
      instalments. The respondent then negotiated with the next highest bid-
      der, who enhanced the offer to Rs.4,50,000 which was accepted by the
      respondent. The property, however, was sold to a partnership firm in
 ~ which the said bidder was a partner.                                            F

            The appellant thereupon moved the High Court complaining that
      the respondent in selling the property to t.he firm had deviated from the
      normal practice of inviting the tenders from the public and that the
      Corporation being a public authority was bound to act reasonably and
      fairly and it ought not be have arbitrarily selected the purchaser. The G
      High Court declined to interfere.

            Dismissing the appeal,

            HELD: The action of the respondent in offering the property to
      the person next in order by private negotiations and selling the same at H
                                         1079
    1080                   SUPREME COURT REPORTS             [1988) 1 S.C.R.

A   his request to the partnership firm was perfectly justified. [I087G]          i"'

          The public property owned by the State or by any instrumentality
   of the State should be generally sold by public auction or by inviting
   tenders, not only to get the highest price for the property but also to
   ensure fairness in the activities of the State and public authorities. They
B should act fairly. Their actions should be legitimate. Their dealings
   should be above board, Their transactions should be without aversion 't .~
   or affection and should not be suggestive of discrimination, bias,
   favouritism or nepotism. Ordinarily these facts would be absent if the        •
   matter is brought to public auction or sale by tenders. Though that is
   the ordinary rule, it is not an invariable rule. There may be situations J
c  necessitating departure from the rule, but then such instances must be " ' .
  justified by compelling reasons and not by just convenience. [10868; 1087 A-Cl

          In the instant case, the respondent dealt with the property in all
    fairness. It invited tenders for the sale of the property under the notifi-
    cation. The appellant submitted the highest tender in response to the
D   said notification. He was granted all concessions and facilities for pay-
    ment by instalments but he failed. If the appellant could not act accord-
    ing to his tender, there was no reason why the property should not be
    offered to the person who was next in order. The respondent, therefore,
    did not do anything unfair with the second bidder after it had got the
    tender amount raised substantially. [1087D-F)
E
          K.N. Guruswamy v. The State of Mysore & Ors., [1955] 1 SCR
    305 at 312; Mohinder Singh Gill & Anr. v. The Chief Election Commis-
    sioner, New Delhi & Ors., [1978] 2 SCR 272; R.D. Shetty v. The
    International Airport Authority of India & Ors., [1979) 3 SCR 1014;
    Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir & Anr.,
                                                                                   --
F   [1980] 3 SCR 1338; Fertilizer Corporation Kamagar Union v. Union of~
    India, AIR 1981 SC 344; Ram and Sh yam Company v. State of Haryana \
    & Ors., [1985] Suppl. SCR 541 and Shri Sachidanand Pandey v. State
    of W.B. AIR 1987 SC 1109, applied.


G         CIVIL APPELLATE JURISDICTION: Civil Appeal No. 914
    of 1987.

         From the Judgment and Order dated 22.8.1984 of the Kerala
    High Court in O.P. No. 6806 of 1984.

H          Abdul Khader and E.M.S. Anam for the Appellant.
T.M. HASSANv. KERALAFINANCIALCORPORATJON [SHEITY,J.]             1081

     G. Vishwanath Iyer, N. Sudhakaran for the Respondent.
                                                                        A
     The Judgment of the Court w.as delivered by

       JAGANNATHA SHETTY, J. A tea estate of 100 acres with
some buildings, machinery and equipments was given as security to the
Kerala Financial Corporation ("The Corporation") against the loan B
taken by the appellant. A part of the loan remained outstanding and
the appellant could not clear it. The Corporation thereupon filed O.A.
No. 8164 before the District Court of Kottayam for recovery of the
arrears and obtained decree for an amount of Rs.1,20,000. In execu-
tion of the decree, the said tea estate was brought for sale by court
auction. On November 5, 1969, the auction sale was held. There was
no bidder. So the Corporation itself had to purchase the property for C
about Rs.1,65,000. There was long standing dispute between the work-
men of the estate and the previous management relating to payment of
their wages. The Corporation therefore could not take possession of
the estate. An extent of 85 acres out of 100 acres of the -estate was in
possession of the workmen as per settlement arrived at between the D
 Labour Comissioner and the District Collector. The workmen used to
 collect the income therefrom towards their wages. This arrangement
 continued for about thirteen years. On January'7, 1982, the Corpora·
 tion got possession of the entire estate. The Corporation wanted to
 recover its amount. It was not interested in the property. It therefore,
 invited tenders for the sale of the estate. On March 19, 1982, a tender E
 notification was published in dailies like Malayala Manorama, Math-
 rubhoomi and Deepika newspapers. In response to the notification,
 the daughter-in-law of the appellant was the only tenderer. She
 offered Rs.5,10,505. The Corporation accepted the tender. It was sub-
 sequently found that the daughter-in-law was no better than the appel-
 lant. She also could not pay any amount.                                 F

      On January 18, 1983, the Corporation again invited tenders for
the sale of the property. The notification was published in the said
newspapers as it was done earlier. This time, the Corporation received
these tenders: (i) T.M. Hassan Rawther (Appellant before us) for
Rs. six lakhs; (ii) P.M. Jacob for Rs.4,15,550 and (iii) K.K. Mathew G
for Rs.2,07,451. Since the appellant submitted the highest offer, the
Corporation naturally had to accept it. On March 2, 1983, the accep-
tance was communicated to the appellant. He must have thanked his
stars for getting back his family property which was so dear to him or
which was 11Ce0H!ing to him so valuable. But there was no such anxiety
shown. He did not pay anthing except the earnest money of Rs.40,000. H
    1082                  SUPREME COURT REPORTS            [1988) I S.C.R.

    The Corporation, however, extended the time for payment again and
A
    again. The Corporation also gave him instalments for payment of the
    balance price. All the efforts of the Corporation failed to induce the
    appellant.

          The Corporation wanted to get back its money. It was not ·
B   interested in retaining the property. So it negotiated with P.M. Jacob
    who had submitted his tender alongwith the appellant in response to    i'
    the notification dated January 18, 1983. He had then offered
    Rs.4, 16,550. His tender was the next best. After negotiation, he         >-
    enhanced the offer to Rs. four and a half lakhs. The Corporation
    accepted it and decided to sell the property to P.M. Jacob. The pro-
    perty however, was sold to Mis. Gumraj Plantations at the request of ~-
c   P.M. Jacob. Mis. Gumraj Plantations is a partnership firm in which     '
    P.M. Jacob is one of the partners.

        The appellant who could not purchase the said property by any
  means filed suit O.S. No. 229184 before the Munsif Court Thidupuzha
p to restrain the Corporation from selling the property. He could not get
  relief in the suit since by then the sale deed was executed in favour of
  Mis. Gumraj Plantations. Subsequently, he moved the High Court of
  Kerala complaining that the Corporation while selling the property for
  Rs. four and a half Iakhs to Mis. Gumraj Plantations, had deviated
  from the normal practice of inviting tenders from the public. He con-
E tended that the Corporation being a public authority was bound to act
  reasonably and fairly and it ought not to have arbitrarily selected the
  purchaser. The High Court found no substance in those submissions.
  The High Court observed:

                     "The submission made by the petitioner's counsel is
               that the decision to sell the property by private negotiations .~
                                                                                    --
F
               is arbitrary and is therefore liable to be interfered with by    \
               this court. This is clearly a case where in execution pro-
               ceedings the decreeholder has purchased the property and
               thereafter the property was sold in public auction to the
               petitioner, who purchased it for Rs. six lakhs but failed to
G              pay the sale amount in spite of the fact that this court and
               afterwards the corporation had shown great indulgence
               towards the petitioner. This is not at all a fit case for in-
               terference under Art. 226 of the Constitution."

        Being aggrieved by the judgment of the High Court, the appel-
H !ant has preferred the present appeai. On May 18, 1985, this Court
T.M. HASSAN v. KERA LA FINANCIAL CORPORATION [SHETTY. J.]            1083

while entertaining the appeal issued notice limited to the question          A
whether the sale of the property should be made by general auction.
This Court further directed that in any event, the appellant will not be
allowed to participate in the auction.

      Very interesting tum of events. The appellant who miserably
failed to secure the property for himself is now interested in securing      B
the best price for the Corporation. He says that this is a public interest
litigation. His case is that the Corporation in all fairness must dispose
of the property by public auction. It could not have bargained with
P.M. Jacob and sold the property to M/s. Gumraj Plantations.

      Before the High Court, the appellant attacked the sale also on C
the ground that it was actuated by extraneous considerations. He
alleged that the corporation had succumbed to the pressure of some
influential persons for the sale of"the property in favour of Mis.
Gumraj Plantations. The appellant made these allegations but did not
substantiate it. He did not give the names of influential persons whn
had brought pressure on the Corporation. He did not even state as to D
how the Corporation officials had shown undue interest with P.M.
Jacob or with the other partners of M/s. Gumraj Plantations for sale of
the property. It is not proper to make such light hearted and vague
allegations against the statutory authorities. These allegations, in our
opinion, are uncharitable and unfounded.
                                                                         E
      The only question that arises for consideration is whether on the
facts and in the circumstances, the Corporation was not justified in
selling the property by private negotiations in favour of Mis. Gumraj
Plantations at the instance of P.M. Jacob. It is needless to state that
the Government or public authorities should make all attempts to
 obtain the best available price while disposing. of public properties. F
 They should not generally enter into private arrangements for the
 purpose. These principles may be taken as well established by the
following decisions of this Court: (i) K.N. Guruswamy v. The State of
 Mysore and others, [1955] 1 SCR 305 at 312; (ii) Mohinder Singh Gill
 & Anr. v. The Chief Election Commissioner, New Delhi and others,
 [1978] 2 SCR 272; (iii) R.D. Shetty v. The International Airport G
 Authority of India and Ors., [1979] 3 SCR 1014; (iv) Kasturi Lal
 Lakshmi Reddy v. State of Jammu and Kashmir and Anr., (1980] 3
 SCR 1338; (v) Fertilizer Corporation Kamagar Union v. Union of
 India, AIR 1981 SC 344; (vi) Ram and Shyam Company v. State of
 Haryana and Ors. [1985] Supp. SCR 541 and (vii) Shri Sachidanand
 Pandey v. State ofW.B. AIR 1987 SC 1109.                                 H
    1084                 SUPREME COURT REPORTS           [1988] 1 S.C.R.

A        In R. D. Shetty v. The International Airport Authority of India   ,..
    and Ors. [1979) 3 SCR 1014 at 1041 Bhagwati, J. speaking for the
    Court observed:

                     "Now, obviously where a corporation is an instru-
B              mentality or agency of Government, it would, in the exer-
               cise of its power or discretion, be subject to the same
               constitutional or public law limitations as Government. f
               The rule inhibiting arbitrary action ·by Government which
               we have discussed above must apply equally where such           ._
               corporation is dealing with the public, whether by way of
               giving jobs or entering into contracts or otherwise, and it {
c              cannot act arbitrarily and enter into relationship with any . ·
               person it likes at its sweetwill, but its action must be in
               conformity with some. principle which meets the test of
               reason and relevance.

D                   This rule also flows directly from the doctrine of
              equality embodied in Art 14. It is now well settled as a
              reuslt of the decisions of this Court in E.P. Rayappa v.
              State of Tamil Nadu and Maneka Gandhi v. Union of India
              that Article 14 strikes at arbitrariness in State action and
              ensures fairness and equality of treatment. It requires that v
E             State action must not be arbitrary but must be based on
              some rational and relevant principle which is non-dis-
              criminatory: it must not be guided by any extraneous or
              irrelevant considerations, because that would be denial of - -
              equality. The principle of reasonableness and rationality
              which is legally as well as philosophically an essential
F             element of equality or non-arbitrariness is protected by
              Art. 14 and it must characterise every State action, whethe~.-(
              it be under authority of law or in exercise of executive
              power without making of law. The State cannot, therefore,
              act arbitrarily in entering into relationship, contractual or
              otherwise with a third party, but its action must conform to
G             some standard or norm which is rational and non-dis-
              criminatory."

           In Kasturi Lal Lakshmi Reddy v. State of J & K, (1980) 3 SCR ~
    1338 at 1355 Bhagwati, J. again speaking for the Court reiterated what
    he said earlier to R.D. Shetty case. The learned Judge went on to
1-1 state:
T.M. HASSAN v. KERALAFINANCIALCORPORATION [SHETIY.J.)                1085

                 "Every action taken by the Government must be in
                                                                              A
           public interest; the Government cannot act arbitrarily and
           without reason and if it does, its action would be liable to
           be invalidated. If the Government awards a contract or
           leases out or otherwise deals with its property or grants any
           other larg~ss, it would be liable to be tested for its validity
           on the touch-stone of reasonableness and public interest           B
           and if it fails to satisfy either test, it would be unconstitu-
           tional and invalid."

The learned Judge continued (at p. 1357):

                  "But one basic principle which must guide the Court
           in arriving at its determination on this question is that there    c
           is always a presumption that the Governmental action is
           reasonable and in public interest and it is for the party
           challenging its validity to show that it is wanting in reason-
           ableness or is not informed with public interest. This
           burden is a heavy one and it has to be discharged to the           D
           satisfaction of the Court by proper and adequate material.
           The Court cannot lightly assume that the action taken by
           the Government is unreasonable or without public interest
           because as we said above, there are a large number of
           policy considerations which must necessarily weigh with
            the Government in taking action and therefore, the Court          E
           would not strike down governmental action as invalid on
            this ground, unless it is clearly satisfied that the action is
            unreasonable or not in public interest. But where it is so
            satisfied it would be the plainest duty of the Court under
            the Constitution to invalidate the governmental action.
            This is one of the most important functions of the Court          F
            and also one of the most essential for preservation of the
            rule of law."

     In Fertilizer Corporation case (AIR 1981 SC 344 at 350 this Court
speaking through Chandrachud, C.J., observed:
                                                                              G
                  "We want to make it clear that we do not doubt the
            bona fides of the authorities, but as far as possible, sales of
            public property, when the intention is to get the best price,
            ought to take place publicly. The vendors are not necessar-
            ily bound to accept the highest or any other offer, but the
            public at least gets the satisfaction that the Government has     H
      1086                  SUPREME COURT REPORTS               [1988] I S.C.R.

                 put all its cards on the table. In the instant case, the officers
A
                 who were concerned with the sale have inevitably, though
                 unjustifiably attracted the criticism that during the course
                 of negotiations the original bid was reduced without a
                 justifying cause. We had willy-nilly to spend quite some
                 valuab.le time in satisfying ourselves that the reduction in
B                the price was a necessary and fair consequence of the
                 reduction in the quantity of the goods later offered for sale       t
                 on March 31, 1980. One cannot exclude the possibility
                 that a better price might have been realised in a fresh
                 public auction but such possibilities cannot vitiate the sale
                 or justify the allegations of malafides."
•'
'          In Shri Sachidanand Pandey v. State of West Bengal, AIR 1987
     SC 1109 at 1133, 0. Chinnappa Reddy, J. after considering almost all
     the decisions of this Court on the subject summarised the propositions
     in the following terms:

D                      "On a consideration of the relevant cases cited at the
                bar the following propositions may be taken as well
                established: State owned or public owned property is not to
                be dealt with at the absolute discretion of the executive.
                Certain percepts and principes have to be observed. Public
                interest is the paramount consideration. One of the
E               methods of securing the public interest when it is con-
                sidered necessary to dispose of a property, is to sell the
                property by public auction or by inviting tenders. Though
                that is the ordinary rule, it is not an invariable rule. There
                may be situations' where there are compelling reasons
                necessitating departure from the rule but then the reasons
F               for the departure must be rational and should not be sug-
                gestive of discrimination. Appearance of public justice is as
                important as doing justice. Nothing should be done which
                gives an appearance of bias, jobbery or nepotism."

           After applying these tests, the learned Judge finally upheld the
     action of West Bengal Government in not inviting tenders, or in not
     holding a public auction but negotiating straightway at arms length
     with Taj Group of Hotels for giving about four acres of land for
     establishing a five star hotel.

         The public property owned by the State or by any instrumental-
H ity of the State should be generally sold by public auction or by inviting
         T.M. HASSAN v. KERALAFINANCJALCORPORATION (SHE1TY,J.)                1087

   --1      tenders. This Court has been insisting upon that rule, not only to get A
            the highest price for the property but also to ensure fairness in the
            activities of the State and public authorities. They should undoubtedly
            act fairly. Their actions should be legitimate. Their dealings should be
            above board. Their transactions should be without aversion or affec-
            tion. Nothing should be suggestive of discrimination. Nothing should
                                                                                       B
            be done by them which gives an impression of bias, favouritism or
      ..,.. nepotism. Ordinarily these factors would be absent if the matter is
            brought to public auction or sale by tenders. That is why the Court
..c:-       repeatedly stated and reiterated that the State owned properties are
             required to be disposed of publicly. But that is not the only rule. As
             0. Chinnappa Reddy, J. observed "that though that is the ordinary
   _ <t"" , rule, it is not an invariable rule." There may be situations necessitating c
             departure from the rule, but then such instances must be justified by
             compulsions and not by compromise. It must be justified by compel-
             ling reasons and not by just convenience.

                What is the position in the present case. Here is a case where the
          Corporation invited tenders for the sale of the property under notifica- D
          tion dated January 18, 1983. The appellant submitted the highest
          tender in response to the said notification. He was given all conces-
          sions for payment of the tender amount. But he did not. He negotiated
          with the Managing Director of the Corporation for facilities for pay-
          ment by instalments. That was also granted to him. There again he
          failed. If the appellant could not act according to hiS tender, we fail to E
          see why the property should not be offered to the person who was next
          in order. The Corporation, in our opinion, did not do anything unfair
          with P .M. Jacob. The Corporation got the tender amount raised from
           Rs.4, 16,550 to Rs.4,50,000. It shows the fairness with which the
           Corporation dealt with the property.
                                                                                       F
                On a consideration of all the facts- and circumstances of the case
          we are satisfied that the action of. the Corporation in offering th~
          property to P .M. Jacob and selling the same at his request to Mis.
          Gumra j Plantations was perfectly justified and cannot be found fault
          with.
                                                                                      G
               In the result the appeal fails and is dismissed. In the circumst-
   ~      ances, however, we make no order as to costs.

          P.S.S.
                                                                 Appeal dismissed.