Holding

Section 87 does not make the tender contract unenforceable, the exemption is not a condition precedent, and the High Court erred in implying a term; the contract is enforceable and the second‑highest bidder must pay.

Summary

The Kerala government transferred land to GIDA, which invited tenders for its sale. Hotel Venus International was the successful bidder, but it insisted on obtaining an exemption under Section 81(3)(b) of the Kerala Land Reforms Act before furnishing the required bank guarantee. The exemption was delayed, and the successful bidder failed to provide the guarantee, leading GIDA to cancel its confirmation. Puravankara Projects Ltd., the second‑highest bidder, matched the winning offer and sought enforcement of its tender, arguing that the exemption was not a condition precedent and that Section 87 of the Act did not render the contract illegal. The Kerala High Court held the contract unenforceable, treating the exemption as an implied term and applying Section 23 of the Indian Contract Act. The Supreme Court reversed this, holding that Section 87 was mis‑applied, the exemption was not a condition precedent, no implied term could be read into the tender, and the contract was enforceable, directing the second‑highest bidder to pay the amount. The appeals were allowed and the High Court order set aside, with no order as to costs.

Issues considered

Whether Section 87 of the Kerala Land Reforms Act, 1963 renders a tender contract unenforceable when an exemption under Section 81(3)(b) has not been obtained.
Whether the exemption notification under Section 81(3)(b) is a condition precedent to the tender contract.
Whether the High Court could imply a term that the exemption must be obtained before furnishing the bank guarantee.
Whether Section 23 of the Indian Contract Act, 1872 (public policy/illegality) applies to the tender contract.
Whether the Government has privity of contract with the bidders and can be bound by implied terms.
Whether the terms of a public tender can be modified by a court.

Legislation cited

Indian Contract Act, 1872s. 23
Kerala Land Reforms Act, 1963s. 81(3)(b), s. 85, s. 85A, s. 87

Subjects

Kerala Land Reforms ActSection 87Section 81(3)(b)exemption notificationpublic tendercontract enforceabilityimplied termspublic policySection 23 Indian Contract Actadministrative law vs contractual lawnatural justicedoctrine of fairness

Judgment

MIS. PURAVANKARA PROJECTS LTD. A
v.
MIS. HOTEL VENUS INTERNATIONAL AND ORS.

FEBRUARY 2, 2007

[DR. ARIJIT PASA YAT AND S.H. KAPADIA, JJ.] B

) Kera/a Land Reforms Act, 1963--Sections 81(3)(b) and 87-Transfer
of land by Government with authority to sell it in public auction-Transferee
selling it to successful bidder in tender-Jn pre-bid meeting, transferee assuring C
that exemption notification from government under Section 81 (3) (b) would
be obtained in a few days-However, successful bidder insisting on it as pre
condition to furnishing of bank guarantee as per tender terms-Second
highest bidder knowing that bank guarantee had not been furnished, matched
the highest offer and entire payment in lump sum-On failure of successful
bidder to furnish bank guarantee, transferee cancelling their letters of D
confirmation issued earlier-High Court holding that (lj contract was un-
enforceable in view of Section 87 of Act of I 963 (iij as disregard of statutory
requirements could render contract illegal opposed to public policy under
Section 23, Indian Contract Act, 1872, exemption notification should have
come before invitation of tender (iii} exemption notification was part of E
implied terms (iv) successful bidder was entitled to farther time to furnish
bank guarantee after grant of exemption-Correctness of-Held-High Court
mis-construed scope of Section 87-Reason that bank guarantee was not
given was of no consequence-Facts showed that successful bidder was itself
conscious that exemption notification was not necessary before famishing of
bank guarantee-Government itself had permitted seller to sell property F
initially and Section 23 of Contract Act was not applicable-It was not
permissible for High Court to modify contract by implying term absent in
tender and post paining time by which bank guarantee was to be furnished-
Second highest bidder directed to make payments as per their offer.

Administrative and contractual law-Distinction between-Principles G
of natural justice ensuring fair decision in quasi-judicial fanction and doctrine
of fairness ensuring fair action in administrative function-They cannot be
invoked to amend, alter or vary expressed terms of contract between parties.

215 H
216 SUPREME COURT REPORTS [2007] 2 S.C.R.

A GIDA, a non statutory State Government Undertaking, had some land
transferred to it by State Government and was authorized to sell in public
auction. It invited tenders for that purpose. Respondent no. I was the
successful bidder therein and appellant was the second highest bidder. In the
pre-bid meeting one of the queries raised by participants was regarding when
B exemption notification under Section 81(3)(b) of the Kerala Land Reforms
Act, 1963 would be obtained from the Government In response, Secretary,
GIDA replied that it had moved for same and it will be obtained in a few days.
However, after acceptance of its bid, respondent no. I insisted on exemption
being obtained by GIDA as a pre condition to fulfil the tender terms and (
conditions, more particularly relating to furnishing of bank guarantee.
C Appellant knowing that respondent no. I had not furnished the said bank
guarantee, matched the highest offer and agreed to pay the entire amount in
a .lump sum. When GIDA did not respond to their offer, appellant moved the
High Court for direction for consideration of its tender and sought cancellation
of tender of respondent no. I, as well as consequential relief that the time for
them to furnish bank guarantee should not be extended. In the meantime, as
D respondent no. I failed to furnish the bank guarantee, GIDA cancelled letters
of confirmation issued to them earlier. Respondent no.I challenged this before
High Court contending that time for compliance should be computed only from
date of exemption. However, GIDA accepted the aforesaid offer of appellant,
subject to the decision of the High Court in the pending writ petitions.
E High Court allowed the writ petition of respondent no. I and dismissed
those filed by the appellants. It held that (i) the contract was Un-enforceable
in view of Section 87 of Act of I963 (ii) both the Government as well as GIDA
were aware that without the exemptions notification, entire contract would be
rendered void, unworkable and stand frustrated (iii) disregard of statutory
F requirements could have rendered the contract illegal as opposed to public
policy in view of Section 23 of Indian Contract Act, 1872, therefore, the
exemption notification should have come before inviting the tender so that
the bidders were in a position to know the restitutions and conditions which
Government would impose while granting exemption (iv) the exemption
G notification can be treated as part of implied terms (v) respondent No.I was
entitled to further time to furnish the bank guarantee after grant of exemption.
Hence the present appeal.

Appellants contended that (i) Section 87 was inapplicable as impugned
agreement for sale did not create any interest in the property (ii) exemption
H was not a condition precedent it issuance of tender as all concerned knew
'
-/.
PURA VANKARA PROJECTS LTD. v. HOTEL VENUS INTERNA T!ONAL 217
.. -;+-
that it could be granted later on, it was necessary only when the total area A
exceeded the prescribed ceiling limit and successful bidder could be allotted
plot of land within that limit (iii) respondent no. 1 was aware that exemption
notification was not a condition precedent as indicated by their seeking of
permission to execute the sale deeds to save the stamp duty, wherein absence
of the exemption order was not even taken as a ground (iv) High Court virtually
re-wrote the terms of the tender document and in essence introduced new
B
aspects in the contract.

Respondent No. 1 contended that (i) in the absence of the exemption
)-
notification legally the successful bidder could not hold any land, and that
affected the generation of finances (ii) in the pre bid meeting a specific stand
was raised as to when the exemption notification is likely to be issued and the
c
reply of GIDA authorities was that it was to be obtained shortly.

Allowing the appeals, the Court

HELD 1.1. Section 87 deals with acquisition of title after the notified
D
date. Section 87(1)(a) deals with action to be taken within a period of three
months from the date of acquisition. The bank guarantee was to be furnished
within a period of 10 days. (Para 18) (226-G)
)(

1.2. The High Court mis-construed the scope of Section 87 of the Act.
The reason that the bank guarantee was not given is of no consequence. E
Respondent no.I itself being conscious that the exemption notification was
not necessary before furnishing of bank guarantee, requested for immediate
registration of the sale deed. The only reason indicated was that if it is done
before a particular date considerable amount of stamp duty would be saved. At
that stage, GIDA was never even intimated by respondent no. 1 that it had no
_J money or that it was awaiting for bank finances or that there was any necessity F
to obtain exemption notification. It appears even the stands regarding the
availability of finances are different at different points of time. (Para 18)

1.3. In the pre bid meeting also admittedly there was no demand to
change the condition regarding the exemption notification being obtained first.
G
GIDA's stand was very specific. It never treated the exemption notification to
be a condition precedent. (Para 19) [227-CI
>.
1.4. Clause 1I of Tender Terms and Conditions also throws considerable
light on the actual intention. The same when read with Clause 14 makes the
position clear that if after payment of first instalment the allottee desires to H
.J
218 SUPREME COURT REPORTS [2007] 2 S.C.R.

A avail loan from a bank or financial institution for paying the second and third
instalments of the sale value of the land, GIDA will issue NOC in favour of
bank/financial institution. Therefore, only after the payment of the first
instalment, the question of GIDA issuing NOC arises, that too when the
allottede desires to avail loan for paying the second and third instalments.
B [Para 20) (227-D]

2. The Government itself permitted GIDA to sell the property initially.
Section 23 of the Contract Act has really no application to the facts of the
case. Section 87 deals with acquisition after the date of notification and permits
filing of the statements subsequently in terms of Sub-section CIA of Section
C 87. Illegality is attached to a case where a person continues to hold the land
and there is a requirement of Surrender after acquisition. (Para 22) (227-G]

3.1. There was no privity of contract between Government and the bidders.
The tender conditions inter alia contained provisions relating to signing of
contract and payment of money. There can be no implied terms so far as the
D Government is concerned. Terms can be claimed to be implied by the parties
to th1! contract. Thus, it was open to the contracting parties to say that subject
to obtaining exemption notification, the contract would be given effect to. It is
not so in the present case. (Para 24( (228-8)

3.2. By observing that there was implied terms which is not there in
E the tender, and postponing the time by which the bank guarantee has to be
furnished, in essence the High Court directed modification of a vital term of
the contract. (Para 31) (234-G)

Mis. New Bihar Biri Leaves Co. and Ors. v. State of Bihar and Ors.,
(1981) l sec 537, referred to.
F
Chitty on Contracts, 28th Edn. Chapter 13.Halsbury 's Laws ofEngland,
4th Edn, Vol. 9 referred to.

3.3 Government by a contract cannot be compelled to grant permission.
The statutory parameters have to be kept in view. A condition may be there,
G as appears to be in present case, to take steps to obtain permission. An
agreement may fail because of absence of permission. Then it becomes
unenforceable. (Para 25) (22!! ·CJ

W.B. State Electricity Board v. Patel Engineering Co. Ltd. and Ors.,
H [2001) 2 SCC 451; Directorate of Education and Ors. v. Educomp Datamatics
(

!
PURA VANKARA PROJECTS LTD. v. HOTEL VENUS JNTERNA TIONAL 219

.... Ltd. and Ors., [2004] 4 SCC 19 and Har Shankar and Ors. v. The Dy. Excise
and Taxation Commr. and Ors., [1975[ 1 SCC 737.
A

4.1. There is a vital distinction between the administrative and
contractual law decisions. !Para 23] [227-H; 228-A]

Indian Oil Corporation Ltd. v. Amritsar Gas Service and Ors., [1991] 1 B
sec 533, relied on.
4.2. Just as the principles of natural justice ensure fair decision where
function is quasi-judicial the doctrine of fairness is evolved to ensure fair
action when the function is administrative. But the said principle cannot be
invoked to amend, alter or vary the expressed terms of the contract between c
the parties. [Para 35) (235-F-G)

Assistant Excise Commissioner and Ors. v. Jsaac Peter and Ors., [1994]
4 sec 104, relied on.

5. The appellants had stated their willingness to match the amount D
offered by Respondent no. 1 and also to pay interest in terms of the contract.
It has been stated that the whole amount shall be paid and they shall not give
any bank guarantee. Let the amounts offered by Respondent no. 1 be paid by
the appellants within a period of one month from today with interest@ 12%
p.a. from the date of allotment. The amount, if any deposited by Respondent
E
no. 1 will be refunded with interest @ 9% from the date of deposit within a
period of six weeks. [Para 40] [237-F-G)

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7560 of2005.

From the final Judgment and Order dated 20.7.2005 of the High Court
_j F
ofKerala at Ernakulam in W.A. No. 1295/2005.

WITH

C.A. No. 7561 of2005.

Harish N. Salve, Anil B. Diwan T.L.V. Iyer, Dushyant Dave, Arnn Jaitley, G
.. }
Joshua H. Samuel, V. Giri, David Rao, Vijay Prakash, Khwairakpam Nobin
Singh, E.R. Kumar, Nitin Thukral, P.H. Parekh, John Mathew, Ramesh Singh,
S. Udaya Kumar Sagar, Bina Madhavan, Rahul Pratap Singh (Mis. Lawyer's
Kinit & Co.) G. Prakash and Beena Prakash for the appearing parties.
H
220 SUPREME COURT REPORTS [2007] 2 S.C.R.

A The Judgment of the Court was delivered by

DR. ARIJIT PASAYAT, J. I. Challenge in these appeals is to the judgment
of a Division Bench of the Kerala High Court holding that the order of
cancellation dated 13 .4.2005 passed by respondent No.2 was illegal and that
respondent No. I was entitled to further time to furnish the bank guarantee
B after the order granting exemption in terms of Section 81(3)(b) of the Kerala
Land Reforms Act, 1963 (in short the 'Act') is issued.

2. The background facts in a nutshell are as follows:

The State Government transferred 51.96 acres of land in favour of
C Goshree Island Development Authority (in short the 'GIDA) a non statutory
State Government Undertaking to enable it to sell it and to use the proceeds
for its developmental schemes. GIDA was authorized to sell the land in public
auction in part or in full. GIDA invited tenders on several occasions but the
tenders were cancelled. Finally, as per Notification dated I0.1.2005 fresh
D tenders were invited and pre bid meeting was held on 10.2.2005. Tenders were
submitted, which were opened on 16.2 .2005. In the tender documents four
options were indicated. The individual extent of plots mentioned in option IV
which was accepted by the GIDA was less than the ceiling limit contemplated
under Section 82(d) of the Act i.e. 15 acres.

E 3. Respondent No.I i.e. Mis Hotel Venus International (hereinafter
referred to as the 'Venus') was the successful bidder in respect of plot Nos.
D3, D4 and D5 and its sister concerns were successful in respect of plots B,
C3, C4 and C5 under Option IV. Appellant M/s Puravankara Projects Ltd. was
-
the second highest bidder in respect of plot Nos. D3, D4 and D5 measuring
about 8.78 acres each. In the pre bid meeting held on 10.2.2005 one of the
F queries raised by one of the participants was as to when exemption notification
under Section 81(3)(b) of the Act would be obtained. The reply by the
Secretary, GIDA forms the foundation of several stands in the present appeals.
The Secretary admittedly replied as follows:

"GIDA had moved for general exemption under Section 81(3)(b)
G of the Kerala Land Reforms Act from the Government and the same
will be obtained in a few days".

4. On 28.2.2005 the General Council ofGIDA accepted bids of Venus for plot
Nos. D3, D4 and D5 and confirmation letters of the said acceptance were
H issued on 1.4.2005 from Cochin addressed to the addressees in terms of
PURAVAN KARA PROJECTS LTD. v. HOTEL VENUS INTERNA Tl ONAL [PASAYAT, J.] 22 \

Clause 19 of the tender. The addressees were rn Trivandrum A
(Thiruvananthapuram ).

5. By letter dated 31.3.2005 Venus insisted on an exemption notification
being obtained by GIDA as a pre condition to fulfil the tender terms and
conditions, more particularly relating to furnishing of bank guarantee in terms
of Clause I0 of the tender. There is some dispute as to whether the bidders B
had received the letters because the postal endorsements indicate that on
account of oral instructions of the owner of Venus, the letters were delivered
on 28.4.2005 i.e. much after the normal period of delivery of letters. Appellant
knowing that Venus had not furnished the bank guarantee in terms of Clause
10 of Tender Terms and Conditions vide its letter dated 19.4.2005 matched C
the highest offer in respect of the concerned plots and agreed to pay the
entire amount in a lump sum. When GIDA did not respond to the offer, the
appellant moved the High Court ofKerala by a Writ Petition (C) No.13735
of2005 which relates to C.A. 7561 of2005. Prayer in the writ petition inter
alia was for a declaration that the tender of Venus in relation to plot Nos
D3, D4 and D5 was to be treated as cancelled as the requisite bank guarantee D
was not furnished. A consequential prayer was made not to extend the time
for furnishing bank guarantee and for a direction to GIDA to consider the
appellant's tender which till then was not accepted .
••
6. Learned Single Judge of the High Court passed an interim order

- restraining the alteration of the terms and conditions contained in the tender
until further orders. In the meantime, Venus failed to furnish the bank guarantee
and, therefore, GIDA issued letters of cancellation of the letters of confirmation
E

issued earlier.

7. The order of cancellation was challenged by Venus in respect of the
F
concerned Plots in Writ Petition Nos. 15032/2005, 15048/2005 and 15052/2005.
It is to be noted that the first two related to plot Nos. B, C3, C4 and CS.
During the pendency of the writ petitions, the General Council of GIDA in
its meeting on 21.5.2005 ratified the cancellation and directed forfeiture of the
earnest money deposited in respect of the bids made by Venus in respect
of the plots. hl the said meeting in respect of plot Nos. D3, D4 and D5 it G
was resolved to accept the offers made by the appellant who had offered the
same price as that offered by Venus earlier. The decision was however made
subject to the decision of the High Court in the pending writ petitions.

8. The Notification of exemption of land in terms of Section 81(3)(b) of
H
222 SUPREME COURT REPORTS [2007) 2 S.C.R.

A the Act was issued and published in the official gazette on 20.5.2005. The
learned Single Judge allowed the writ petition filed by Venus essentially
holding that the exemption Notification should have preceded the tender and
Venus could not have been expected to comply with tender conditions without
an exemption Notification. The Writ Petitions filed by the appellants were
B dismissed. The writ appeals preferred in respect of the writ petitions were
dismissed affirming the judgment of the learned Single Judge though on
different grounds.

9. It is to be noted that a Division Bench of the High Court had issued
notice and passed interim order to maintain status quo in respect of the
C concerned plots by order dated 18.8.2005.

I0. According to the appellants Venus had not come to Court with clean
hands. Both learned Single Judge and the Division Bench proceeded on
erroneous premises as if exemption was a condition precedent to issuance of
tender. In fact all cc.ncerned knew that the exemption could be granted later
D on. The exemption was necessary only when the total area exceeded the
prescribed limit. As noted above, the successful bidder could be allotted a
plot of land which was less than the ceiling limit. It is submitted that Venus
was aware that exemption notification was not a condition precedent. Therefore,
it had by its letter dated I 6.3 .2005 addressed to the Chief Minister of State
expressed its willingness for execution of the sale deeds in respect of the
E plots for which they had submitted tenders. Prayer was made in respect uf
the benefit of stamp duty. In that context they had clearly stated in the writ
petition that instead of waiting for instalments they had prepared to raise their
-
own resources to save a huge amount. In other words, attempt of Venus was
to save the stamp duty and absence of the exemption order was not even
p taken as a ground for permission to execute the sale deeds. The High Court,
it is submitted, had erroneously considered the terms of the tender and the
effect of Section 87 of the Act. The High Court by its judgment virtually re-
wrote the terms of the tender document and in essence introduced new
aspects in the contract.

G 11. Section 87 had no application because it relates to cases when a
person either acquires any land after the notified date under Section 83 of the
Act by gift, purchase, mortgage with possession, lease, surrender or any
other kind of transfer inter vivos or by bequest or inheritance or by otherwise. :1.

It comes into existence once there is acquisition of title or interest over the
H property. The agreement for sale does not create any interest in the property -
j
PURA VANKARAPROJECTS LTD. v. HOTEL VENUS INTERNATIONAL[PASAYAT,J.] 223

~
and, therefore, the High Court was not justified in applying Section 87 to the A
'?' facts of the case.

12. In response, learned counsel for Venus-respondent No. I submitted
that Section 81(3)(b} of the Act relates to exemption. Section 82 specifies the
ceiling area and, therefore, no person can hold land in excess of the ceiling
limit. There is a total prohibition. Since the global tender notification was B
issued in respect of the entire 51 acres 96 cents of land, it was obvious that
even if a bidder succeeds in the tender for more than 51 acres of land he
cannot own or hold the land for any purpose without the exemption. Clause
14 of Tender Terms and Conditions provides that allottees can avail loan from
the banks/financial institutions for effecting payment and for that purpose
GIDA was requested to issue NOC. That being so, no any bank or financial
c
institution will advance any amount without a clear title. In the absence of
the exemption notification legally the successful bidder cannot hold any land.
That actually would affect the generation of finances. In the pre bid meeting
a specific stand was raised as to when the exemption notification is likely to
be issued and the reply of GIDA authorities was that it was to be obtained D
shortly. In the absence of the exemption notification the requirement of
furnishing the bank guarantee could not have been insisted upon and both
the learned Single Judge and the Division Bench have therefore rightly held
;., that the exemption notification was a condition precedent. If a bidder is
constrained to fulfill the conditions regarding payment of bank guarantee
E
without exemption that would cause great hardship and if there is non
compliance, the inevitable result would be that GIDA would forfeit the EMD
for no fault of the tenderer. Therefore, the High Court has rightly accepted
the contention of Venus that time for compliance would be computed only
from the date of exemption notification and the receipt of the confirmation
• thereof. When the parties entered into an arrangement it is impliedly F
understood that there should be an effective transfer of undisputed clear title
' to the transferee. It is therefore submitted that the order of learned Single
Judge and the Division Bench do not warrant any interference.

13. A belated special leave petition has been filed by the State taking
the stand that there has been considerable increase in price and cost of the G
land and the appellant should not be allowed to get the land by matching
price offered by Venus. It is to be noted that the order of learned Single Judge
!: was not challenged either by the State Government or GIDA and this fact has
been noted by the Division Bench.
H
224 SUPREME COURT REPORTS [2007] 2 S.C.R.

A 14. A few clauses in the Tender Terms and Conditions need to be noted.
They are Clauses 3, 7, 8, 10, 14 and 15 which read as follows:

"3 The tenderers have to acquaint themselves with regard to the
nature and other conditions of the land before submitting tender. The
Tender form quoting unit rate (rate per cent) enclosed in sealed cover
B with the superscription "Tender for goshree Land at Marine Drive,
Kochi" shall reach the Secretary, Goshree Islands Development
Authority, Park Avenue, Kochi-682 011 before 3.00 P.M. on 16th
February, 2005. Tender received after the time fixed will not be
considered. The tende.rs will be opened by the Secretary, GIDA or an
officer authorized by him at 4.00 P.M. on the same day at District
c Collector's Camp office, Club Road, Kochi-682 011 in the presence of
1he bidders or their authorized representative if present.

xx xx

7. The tenders shall remain open for a period of 90 days.
D
8. The tenders received in each option, will be evaluated by the
General Council and appropriate decision which is most advantageous
to GIDA will be taken. The General Council is free to take any decision,
which it deems fit in the best interest of GIDA.

E xx xx
.
)0(

JO. Within I 0 days of receipt of confirmation letter, the bidder shall
fomish two bank guarantees each covering 20% of the bid amount for
a period of I 80 days. On failure of compliance, the tender shall stand
cancelled without further notice and the earnest money deposit shall
F be forfeited. If the tenderer to whom the notice intimating confirmation
is sent, fails to respond within the specified time of IO days, GIDA
will be free to consider any other tender without any further notice.

Xx xx xx

G 14. If after payment of !st instalment, the allottee desires to avail loan
from banks/financial institutions for paying the 2nd and 3rd instalments
of sale value of the land, GIDA will issue necessary NOC favouring
the bank/financial institution.

15. Sale deed will be registered and possession handed over to the
H purchaser on payment of the full value of the land".
PURA VANKARAPROJECTS LTD. v. HOTEL VENUS INTERNATIONAL [PASAYAT,J.] 225

15. Sections 81(3)(b) and 87 on which much of the controversy A
revolves round read as follows:-

"81(3) The Government may, if they are satisfied that it is necessary
to do so in the public interest.

(a) xx xx xx xx
B
(b) on account of any land being bona fide required for the purpose
of conversion into plantation or for the extension or preservation of
an existing plantation or for any commercial, industrial, education or
charitable purpose, by notification in the Gazette, exempt such land
from the provisions of this Chapter, subject to such restrictions and C
conditions as they deem fit to impose:

Provided that the land referred to in clause (b) shall be used for
the purpose for which it is intended within such time as the
Government may specify in that behalf; and where the land is not
so used within the time specified, the exemption shall cease to D
be in force".

Section 87: Excess land obtained by gift, etc., to be surrendered:-(1)
Where any person acquires any land after the date notified under
section 83 by gift, purchase, mortgage with possession lease, surrender
or any other kind of transfer intervivos or by bequest or inheritance E
or otherwise and in consequence thereof the total extent of land
owned or held by such person exceeds the ceiling area, such excess
shall be surrendered to such authority as may be prescribed.

Explanation 1.- Where any land is exempted by or under section 81
and such exemption is in force on the date notified under section 83, F
such land shall, with effect from the date on which it ceases to be
exempted, be deemed to be land acquired after the date notified under
section 83.

Explanation II.-. Where, after the date notified under section 83, any
class of land specified in Schedule II has been converted into any G
other class of land specified in that Schedule or any land exS!mpt
under section 81 from the provisions of this Chapter is converted into
any class of land not so exempt and in consequence thereof rhe total
extent of land owned or held by a person exceeds the ceiling area, so
much extent ofland as is in excess of the ceiling area, shall be deemed
H
226 SUPREME COURT REPORTS [2007] 2 S.C.R.

A to be land acquired after the said date.

(I A) Any person referred to in sub-section (I) shall file a statement
containing the particulars specified in sub- section (I) of section 85A
within a period of three months of the date of the acquisition.

B (2) The provisions of sections 85 and 8<i shall, so far as may be, apply
to the vesting in the Government of the ownership or possession or
both of the lands required to be surrendered under sub-section (I).

16. It is clear that the Division Bench of the High Court was of the view
that duty is cast on the Government as well as GIDA to inform the prospective ~
C bidders as to whether they propose to place any restriction or condition in
granting exemption under Section 81(3)(b). The High Court also noted that
both the Government and the GIDA were aware of the necessity of issuing
a statutory notification in the gazette under Section 81(3)(b) of the Act failing
which the entire contract would be rendered void and unworkable. Once the
Government refuses exemption the entire contract would be frustrated, as
D also, the restrictions or conditions the Government may impose in a given
case may not be acceptable to the parties. Disregard of statutory requirements
may render the contract illegal and when the contract is entered into in
violation of these statutory requirements it would be opposed to public policy
and may violate Section 23 of the Indian Contract Act, 1872 (in short the
E 'Contract Act'). Therefore, it was held that notification under Section 81 (3)(b)
should have come before inviting the global tender so that the bidders were
in a position to know the restrictions and conditions which Government
would impose while granting exemption. That being so, learned Single Judge's
view is affirmed by the Division Bench of the High Court.

F 17. Clauses IO and 15 in the tender document which have been extracted
above are of considerable significance. Clause JO provides the mode of
payment. Clause 13 provides that in case of non payment of I st instalment,
the bank guarantee can be invoked. Clause 15 provides that the sale deed is
to be registered on payment of the full value of the land.

G 18. Section 87 deals with acquisition of title after the notified date.
Section 87(l)(a) deals with action to be taken within a period of three months
from the date of acquisition. The bank guarantee was to be furnished within
a period of I0 days. The High Court held that the contract was un-enforceable
in view of Section 87 of the Act is not correct. The High Court mis-construed
H the scope of Section 87 of the Act. The reason that the bank guarantee was
I
PURA VANKARA PROJECTS LTD. v. HOTEL VENUS INTERNATIONAL [PASAYAT,J.] 227

not given is of no consequence. In fact as rightly submitted by learned A
counsel for the appellant, Venus itself being conscious that the exemption
notification was not necessary before furnishing of bank guarantee, requested
for immediate registration of the sale deed. The only reason indicated was that
if it is done before a particular date considerable amount of stamp duty would
be saved. At that stage, GIDA was never even intimated by Venus that it B
had no money or that it was awaiting for bank finances or that there was any
necessity to obtain exemption notification. It appears even the stands regarding
the availability of finances are different at different points of time.

}- 19. In the pre bid meeting also admittedly there was no demand to
change the condition regarding the exemption notification being obtained C
first. GIDA's stand was very specific. It never treated the exemption notification
to be a condition precedent.

20. Clause 11 also throws considerable light on the actual intention. The
same when read with Clause 14 makes the position clear that if after payment
of first instalment the allottee desires to avail loan from a bank or financial D
institution for paying the second and third instalments of the sale value of
the land, GIDA will issue NOC in favour of bank/financial institution. Therefore,
only after the payment of the first instalment, the question of GIDA issuing
NOC arises, that too when the allottee desires to avail loan for paying the
second and third instalments.
E
21. Clause 13 provides for forfeiture in case of non payment of the first
instalment and permits the bank guarantee to be invoked without further
notice. It specifically provides for furnishing of bank guarantee in respect of
the required percentage of the bid amount and permits cancellation of the
tender and forfeiture of the amount deposited.
F
22. The High Court also has held that the exemption notification can be
treated as part of implied terms. It is to be noted that the Government itself
permitted GIDA to sell the property initially. Section 23 of the Contract Act
has really no application to the facts of the case. Section 87 as noted above,
deals with acquisition after the date of notification and permits filing of the G
statement subsequently in terms of Sub-section (I A) of Section 87. Illegality
is attached to a case where a person continues to hold the land and there
) is a requirement of surrender after acquisition.

23. There is a vital distinction between the administrative and contractual
H
228 SUPREME COURT REPORTS [2007] 2 S.C.R.

A law decisions.
24. It is to be noted that there was no privity of contract between
Government and the bidders. The tender conditions inter alia contained
provisions relating to signing of contract and payment of money. There can
be no implied terms so far as the Government is concerned. Terms can be
B claimed to be implied by the parties to the contract. Thus, it was open to
the contracting parties to say that subject to obtaining exemption notification,
the contract would be given effect to. It is not so in the present case.

25. Government by a contract cannot be compelled to grant permission. -..+
C The statutory parameters have to be kept in view. A condition may be there,
as appears to be in present case, to take steps to obtain permission. An
agreement may fail because of absence of permission. Then it becomes
unenforceable.

26. Certain decisions of this Court are relevant. Jn WB. State Electricity
D Board v. Patel Engineering Co. ltd. and Ors., [200 I] 2 SCC 451 it was held
that the conditions cannot be changed. The relevant paragraphs are 24, 30
and 31. They read as follows:

"24. The controversy in this case has arisen at the threshold. It
cannot be disputed that this is an international competitive bidding
E which postulates keen competition and high efficiency. The bidders
have or should have assistance of technical experts. The degree of
care required in such a bidding is greater than in ordinary local bids
for small works. It is essential to maintain the sanctity and integrity
of process of tender/bid and also award of a contract. The appellant,
Respondents I to 4 and Respondents I 0 and 11 are all bound by the
F JTB which should be complied with scrupulously. In a work of this
nature and magnitude where bidders who fulfil prequalification alone
are invited to bid, adherence to the instructions cannot be given a go-
by by branding it as a pedantic approach, otherwise it will encourage
and provide scope for discrimination, arbitrariness and favouritism
G which are totally opposed to the rule of law and our constitutional
values. The very purpose of issuing rules/instructions is to ensure
their enforcement lest the rule of law should be a casualty. Relaxation
or waiver of a rule or condition, unless so provided under the !TB,
by the State or its agencies (the appellant) in favour of one bidder
would create justifiable doubts in the minds of other bidders, would
H
I
PURA VANKARA PROJECTS LTD. v. HOTEL VENUS INTERNADONAL [PASAYAT, J.] 229

as in the case of distributing bounty or charity. In our view such A
approach should always be avoided. Where power to relax or waive
a rule or a condition exists under the rules, it has to be done strictly
in compliance with the rules. We have, therefore, no hesitation in
concluding that adherence to the ITB or rules is the best principle te
be followed, which is also in the best public interest.
B
30. Though clause 29 in this case appears to be similarly worded as
in the bid documents in Spina case a close reading of these clauses
shows that no power of waiver is reserved in the case on hand. That
apart, the nature of the error in these two cases is entirely different.
There, the error was apparent$ 400 for$ 4, non-material and waivable C
by the Corporation; in the present case the errors pointed out above
are not simply arithmetical and clerical mistake but a deliberate mode
of splitting the bid which would amount to rewriting the entries in the
bid document and cannot be treated as non-material. Therefore, the
judgment in Spina case does not help Respondents I to 4.
D
31. The submissions that remains to be considered is that as the price
bid of respondents I to 4 is lesser by 40 crores and 80 crores than
that of respondents 11 and I 0 respectively, public interest demands
that the bid of respondents I to 4 should be considered. The Project
undertaken by the appellant is undoubtedly for the benefit of the
public. The mode of execution of the work of the Project should also E
ensure that the public interest is best served. Tenders are invited on
the basis of competitive bidding for execution of the work of the
Project as it serves dual purposes. On the one hand it offers a fair
opportunity to all those who are interested in competing for the
contract relating to execution of the work and, on the other hand it F
affords the appellant a choice to select the best of the competitors on
a competitive price without prejudice to the quality of the work.
Above all, it eliminates favouritism and discrimination in awarding
public works to contractors. The contract is, therefore, awarded
·normally to the lowest tenderer which is in public interest. The principle
of awarding contract to the lowest tenderer applies when all things are G
equal. It is equally in public interest to adhere to the rules and
) conditions subject to which bids are invited. Merely because a bid is
the lowest the requirements of compliance with the rules and conditions
cannot be ignored. It is obvious that the bid of respondents I to 4
is the lowest of bids offered. As the bid documents of respondents H
230 SUPREME COURT REPORTS [2007] 2 S.C.R.

A 1 to 4 stand without correction there will be inherent inconsistency
between the particulars given in the annexure and the total bid amount,
it (sic they) cannot be directed to be considered along with the other
bids on the sole ground of being the lowest."

27. In Directorate of Education and Ors. v. Educomp Datamatics Ltd
B and Ors., [2004] 4 sec 19 it was observed as follows:
"9. It is well settled now that the courts can scrutinise the award of
the contracts by the Government or its agencies in exercise of their I
powers of judicial review to prevent arbitrariness or favouritism. '

However, there are inherent limitations in the exercise of the power of
c judicial review in such matters. The point as to the extent of judicial
review pennissible in contractual matters while inviting bids by issuing
tenders has been examined in depth by this Court in Tata Cellular v.
Union ofIndia, [1994] 6 SCC 651. After examining the entire case-law
the following principles have been deduced: (SCC pp. 687-88, para 94)
D "94. The principles deducible from the above are:
(I) The modern trend points to judicial restraint in administrative
action.
(2) The court does not sit as a court of appeal but merely reviews
the manner in which the decision was made.
E
(3) The court does not have the expertise to correct the
administrative decision. If a review of the administrative decision
is pennitted it will be substituting its own decision, without the
necessary expertise which itself may be fallible.
F (4) The tenns of the invitation to tender cannot be open to
judicial scrutiny because the invitation to tender is in the realm
of contract. Normally speaking, the decision to accept the tender
or award the contract is reached by process of negotiations
through several tiers. More often than not, such decisions are
made qualitatively by experts.
G
(5) The Government must have freedom of contract. In other
words, a fair play in the joints is a necessary concomitant for an
administrative body functioning in an administrative sphere or
quasi- administrative sphere. However the decision must not
only be tested by the application of Wednesbury principle of
H
./
PURAVANKARA PROJECTS LTD. v. HOTEL VENUS INTERNATIONAL [PASAYAT, J.] 23 J

reasonableness (including its other facts pointed out above) but A
must be free from arbitrariness not affected by bias or actuated
by mala fides.
(6) Quashing decisions may impose heavy administrative burden
on the administration and lead to increased and unbudgeted
expenditure." B
10. In Air India Ltd v. Cochin International Airport Ltd, [2000) 2
SCC 617, this Court observed: (Seep. 623, para 7)
'>-
/
"The award of a contract, whether it is by a private party or by
a public body or the State, is essentially a commercial transaction. C
In arriving at a commercial decision considerations which are
paramount are commercial considerations. The State can choose
its own method to arrive at a decisi.on. It can fix its own terms
of invitation to tender and that is not open to judicial scrutiny.
It can enter into negotiations before finally deciding to accept
one of the offers made to it. Price need not always be the sole D
criterion for awarding a contract. It is free to grant any relaxation,
for bona fide reasons. if the tender conditions permit such a
relaxation. It may not accept the offer even though it happens to
be the highest or the lowest. But the State, its corporations,
instrumentalities and agencies are bound to adhere to the norms,
standards and procedure laid down by them and cannot depart E
from them arbitrarily. Though that decision is not amenable to
judicial review, the court can examine the decision-making process
and interfere if it is found vitiated by malafides, unreasonableness
and arbitrariness."
11. This principle was again re-stated by this Court in Monarch F
Infrastructure (P) Ltd. v. Commr, Ulhasnagar Municipal Corpn.,
[2000) 5 sec 287 It was held that the terms and conditions in the
tender are prescribed by the Government bearing in mind the nature
of contract and in such matters the authority calling for the tender is
the best judge to prescribe the terms and conditions of the tender. It G
is not for the courts to say whether the conditions prescribed in the
tender under consideration were better than the ones prescribed in the
earlier tender invitations".

28. In Har Shankar and Ors. v. The Dy. Excise and Taxation Commr.
and Ors., [1975) 1 sec 737 the case of a bid with full knowledge was H
\
232 SUPREME COURT REPORTS [2007] 2 S.C.R.

A considered. It was observed as follows:
"15. Learned counsel for the respondents raised a preliminary objection
to the maintainability of the writ petitions filed by the appellants to
the grant of reliefs claimed by them. He contends that the appellants
who offered their bids in the auctions did so with knowledge of the
B terms and conditions attaching to the auctions and they cannot, by
their writ petitions, be permitted to wriggle out of the contractual
obligations arising out of the acceptance of their bi.ds. This objection
is well-founded and must be accepted.

16. Those interested in running the country liquor vends offered their
c voluntarily in the auctions held for granting licences for the sale of
country liquor. The terms and conditions of auctions were announced
before the auctions were held and the bidders participated in the
auction without a demur and with full knowledge of the commitments
which the bids involved. The announcement of conditions governing
the auctions were in the nature of an invitation to an offer to those
D
who were interested in the sale of country liquor. The bids given in
the auctions were offers made by prospective vendors to the
Government. The Government's acceptance of those bids was the
acceptance of willing offers made to it. On such acceptance, the
contract between the bidders and the Government became concluded
E and a binding agreement came into existence between them. The
successful bidders were then granted licences evidencing the terms
of contract between them and the Government, under which they
became entitled to sell liquor. The licensees exploited the respective
licences for a portion of the period of their currency, presumably in
expectation of a profit. Commercial considerations may have revealed
F
an error of judgment in the initial assessment of profitability of the
adventure but that is a normal incident of all trading transactions.
Those who contract with open eyes must accept the burdens of the
contract along with its benefits. The powers of Financial Commissioner
to grant liquor licences by auction and to collect licence fees through
G the medium of auctions cannot by writ petitions be questioned by
those who, had their venture succeeded, would have relied upon
those very powers to found a legal claim, Reciprocal rights and
obligations arising out of contract do not depend for their
enforceability upon whether a contracting party finds it prudent to
abide by the terms of the contract. By such a test no contract could
H
PURA VANKARAPROJECTS LTD. v. HOTEL VENUSINTERNATIONAL[PASAYAT,J.] 233

ever have a binding force". A
29. The difference between administrative law and contractual law was
succinctly stated in Indian Oil Corporation Ltd v. Amritsar Gas Service and
Ors., [1991] I SCC 533. It was noted in paras 9, IO and 11 as follows:

"9. The argument advanced by Shri Harish Salve on behalf of the B
appellant-Corporation to the validity of the award are these. The first
contention is that the validity of the award has to be tested on the
principle of private law and the law of contracts and not on the
touchstone of constitutional limitations to which the Indian Oi I
Corporation Ltd., as an instrumentality of the State may be subject
since the suit was based on breach of contract alone and the arbitrator C
who proceeded only on that basis to grant the reliefs. It is urged that
for this reason the further questions of public law do not arise on the
facts of the present case. The next contention is that the relief of
restoration of the contract granted by the arbitrator is contrary to law
being against the express prohibition in Sections 14 and 16 of the D
Specific Relief Act. It is urged that the contract being admittedly
revokable at the instance of either party in accordance with clause 28
of the agreement, the only relief which can be granted on the finding
of breach of contract by the appellant-Corporation is damages for the
notice period of 30 days and no more. It was then urged that the
reasons given in the award for granting the relief of restoration of the E
distributorship are untenable, being contrary to law. Shri Salve
contended that the propositions of law indicated in the award and
applied for granting the reliefs disclose an error of law apparent on
the face of the award. It was also urged that the onus of proving valid
termination of the contract was wrongly placed by the arbitrator on F
the appellant-Corporation instead of requiring the plaintiff-respondent
I to prove that t~e termination was invalid. It was also contended that
the failure of the arbitrator to consider and decide the appellant-
Corporation 's counter-claim when the whole suit was referred for
decision constitute legal misconduct.
G
I 0. In reply, Shri Sehgal on behalf of respondent 1 contended that
there is a presumption of validity of award and the objections not
taken specifically must be ignored. This argument of Shri Sehgal
relates to the grievance of the appellant relating to placing the onus
on the appellant-Corporation of proving validity of the termination.
H
234 SUPREME COURT REPORTS (2007] 2 S.C.R.
'(
A This contention of Shri Sehgal must be upheld since no such specific
ground is taken in the objections of the appellant. Moreover, there ,..
being a clear finding by the arbitrator of breach of contract by invalid
termination, the question of onus is really of no significance. The
other arguments of Shri Sehgal are that the termination of
distributorship casts stigma on the partners of the firm; counter claim
B of the appellant-Corporation was rightly not considered since it was
not made before the order of the reference; the reference made being
of all disputes in the suit, the nature of relief to be granted was also
~
within the arbitrator's jurisdiction; and interest also must be awarded l
to the respondent.
c 11. We may at the outset mention that it is not necessary in the
present case to go into the constitutional limitations of Article 14 of
the Constitution to which the appellant-Corporation as an
instrumentality of the State would be subject particularly in view of
the recent decisions of this Court in Dwarkadas Marfatia and Sons
D v. Board of Trustees of the Bombay, Mahabir Auto Stores v. Indian
Oil Corporation and Shri/ekha Vidyarathi v. State of U.P .. This is on
account of the fact that the suit was based only on breach of contract
and remedies flowing therefrom and it is on this basis alone that the ,.
arbitrator has given his award. Shri Salve is therefore right in contending
that the further questions of public law basis on Article 14 of the
I~
Constitution do not arise for decision in the present case and the
matter must be decided strictly in the realm of private law rights
governed by the general law relating to contracts with reference to the
provisions of the Specific Relief Act provided for non-enforceability
of certain types of contracts. It is, therefore, in this background that
F we proceed to consider and decide the contentions raised before us". /..

30. In essence, it was held that tender terms are contractual and it is
the privilege of the Government which invites its tenders and Courts did not
have jurisdiction to judge as to how the tender terms would have to be
framed.
G
31. By observing that there was implied term which is not there in the
tender, and postponing tht time by which the bank guarantee has to be
furnished, in essence the High Court directed modification of a vital term of
the contract.

H 32. In Mis New Bihar Biri Leaves Co. and Ors. v. State of Bihar and
i
PURA VANKARAPRO.IECTSLTD. r. HOTEL VENUS INTERNATIONAL[PAS/.YAT,J.] 235

Ors., (1981] l SCC 537 it was observed at para 48 as follows: A
"48. It is a fundamental principle of general application that if a person
of his own accord, accepts a contract on certain terms and works out
the contract, he cannot be allowed to adhere to and abide by some
of the terms of the contract which proved advantageous to him and
repudiate the other terms of the same contract which might be B
disadvantageous to him. The maxim is qui approbat non reprobate
(one who approbates cannot reprobate). This principle, though
originally borrowed from Scots Law, is now firmly embodied in English
Common Law. According to it, a party to an instrument or transaction
cannot take advantage of one part of a document or transaction and C
reject the rest. That is to say, no party can accept and reject the same
instrument or transaction (Per Scrutton, L.J, Verschures Creameries
Ltd v. Hull@ Netherlands Steamship Co., (1921) 2 KB 608; see
Douglas Menzies v. Umphelby (1908) >\C 224, 232; see also Stround's
Judicial Dictionary, Vol. I, page 169, 3rd Edn.)"
D
33. In Assistant Excise Commissioner and Ors. v. Isaac Peter and Ors.,
(1994) 4 SCC 104 this Court highlighted that the concept of administrative law
and fairness should not be mixed up with fair or unfair terms of the contract.

34. It was stated in no uncertain terms that duty to act fairly which is
sought to be imported into a contract to modify and/or alter its terms and/ E
or to create an obligation upon the State Government which is not there in
the contract is not covered by any doctrine of fairness or reasonableness.
The duty to act fairly and reasonably is a doctrine developed in administrative
law field to ensure the rule of law and to prevent failure of justice when the
action is administrative in nature.
F
35. Just as the principles of natural justice ensure fair decision where
function is quasi-judicial the doctrine of fairness is evolved to ensure fair
action when the function is administrative. But the said principle cannot be
invoked to amend, alter or vary the expressed terms of the contract between
the parties. G
36. So far as the principles relating to implied terms are concerned the
position has been stated by Chitty on Contracts, 28th Edn. Chapter 13. They
read as follows:

"A term will not however thus be implied unless the court is H
236 SUPREME COURT REPORTS [2007] 2 S.C.R.

A satisfied that both parties would, as reasonable men have agreed to
it had it been suggested to them ....... The Court will only imply a term
if it is one which must necessarily have been intended by them, and
in particular will be reluctant to make any implications, "where the
parties have entered into a carefully drafted written contract containing
detail terms agreed between them"A term ought not to be implied
B unless it is in all the circumstances equitable and reasonable. But this
does not mean that a term will be implied merely because in all the
circumstances it would be reasonable to do so or because it would
improve the contract or make its carrying out more convenient. "the
touchstone is always necessity and not merely reasonableness". " ...... A
C term will not be implied if it would be inconsistent with the express
wording of the contract".

37. In Halsbury's Laws of England, 4th Edn, Vol. 9, the expression
"implied terms" reads as follows:

D "In practice, logically implied terms and the other three types of
implied terms tend to merge imperceptibly into each other, all the
categories being justified to some extent by reference to the intention
of the parties; and the distinctions between classes of implied terms
tend to be based on convention rather than logic. The conventional
distinction which will be adopted here, are as follows: (I) terms implied
E by custom; (2) terms implied by law; (3) other terms implied by the
courts. The relationship between the parties may be a matter of
profound importance in determining whether a contract contains a
term implied under one of these heads.

xx xx xx xx
F
Implication by law- There are many cases where apart from local
custom or usage, the common law has recognized a general custom
that certain terms be incorporated into particular types of contract. In
some of these cases, the rules having been decided by the courts,
they have been put into statutory form; for example the implied terms
G in sale of goods, conveyances of interests in land, in contracts of
marine insurance or in contractual licences to enter property.
Frequently, such st<!tutorily implied terms are expressed to give way
to a contrary intention; but there are other cases where the terms
implied by statute cannot be excluded by any contrary agreement. Yet
H a further step in the process is that where statute law has in a
I
PURAVANKARA PROJECTS LTD. v. HOTEL VENUS INTERNATIONAL [PASAYAT, l] 23 7

particular field codified terms implied at common law, the courts may A
import those statutory terms into similar transactions by way of analogy.
For instance, the statutorily implied term as to fitness in a sale of
goods has been imported by analogy into contracts for the
manufacturer of dentures, repair of a motor car, the erection of
scaffolding, the dyeing of a woman's hair but the courts have shown
themselves much more reluctant to import similar terms as to fitness B
into contracts for the sale or lease of interests in land. The conclusion
would appear to be that terms implied by law are not happily described
as "implied terms": they are rather duties which (frequently subject to
a contrary intention) are imposed by the law on the parties to particular
types of contract. In deciding whether to create such duties, the C
courts tend to look, not to the intention of the parties, but to
consideration of public policy ........ An implied warranty, or as it has
been called, a covenant in law, as distinguished from an express
contract or express warranty is really founded on the presumed
intention of the parties and upon reason. The implication which the
law draws from what must obviously have been the intention of the D
parties, it draws with the object of giving efficacy to the transaction
and preventing such failure of consideration as cannot have been
within the contemplation of either side.

38. In view of what we have stated above, it is not necessary to deal
with the grievance raised by the State Government in its belated Special Leave
E
Petition.

39. Judged at from any angle the order of the learned Single Judge as
affirmed by the Division Bench cannot be maintained and is set aside.

40. The appellants had stated their willingness to match the amount
F
offered by Venus and also to pay interest in terms of the contract. It has been
stated that the whole amount shall be paid and they shall not give any bank
guarantee. Let the amounts offered by Venus be paid by the appellants within
a period of one month from today with interest @12% p.a. from the date of
allotment. The amount, if any deposited by Venus will be refunded with G
interest @ 9% from the date of deposit within a period of six weeks.

41. The appeals are allowed but without any order as to costs.

vs. Appeals allowed.
H