Leaving out relevant consideration Administrative Law II

Table of Contents
Introduction...............................................................................................................................2

Notable cases:............................................................................................................................3

Services matter:....................................................................................................................6

Property matters:.................................................................................................................8

Other cases:...........................................................................................................................9

Preventive detention cases:..................................................................................................9

Conclusion...............................................................................................................................10

Bibliography............................................................................................................................11

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Leaving out relevant consideration Administrative Law II

Introduction
If in exercising its discretionary power, an administrative authority ignores relevant
considerations; its action will be invalid. An authority must take into account the
considerations which a statute prescribes expressly or impliedly. In case the statute
does not prescribe any considerations but confers power in a general way, the court
may still imply some relevant considerations for the exercise of the power and quash
an order because the concerned authority did not take these into account.

There was a time when it was difficult to establish that the authority had left out
relevant considerations because of the absence of reasons. Till a few years back,
therefore, not much case law had occurred under this head. This handicap has now
been removed to some extent. With the courts' insistence on the supply of reasons by
administrative authorities at least to them, and also their tendency to look into the
Government record, this ground has become an important one. When the statute it self
lays down the factors or guidelines and the authority does not take them into ac count,
the order will be clearly wrong. 1

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1
Bhopal Sugar Industries v. Union of India, AIR 1979 MP 163
Leaving out relevant consideration Administrative Law II

Notable cases:

Where land was sought to be acquired under the Kerala Cashew Factories (Acquisition)
Act, 1974, it was held that the notice of acquisition must clearly indicate that the government
was satisfied that all conditions mentioned in cll (a), (b) and (c) of sub section (1) of s 3 had
been met. In the absence of such clear indication of the satisfaction regarding the fulfilment
of those conditions, the decision to acquire land could not be said to have been taken on
relevant considerations.2 Under Rule 5 of the Kerala Buildings Rules 1984, the state
government had the power to exempt buildings from the rules. Recommendations, in the
form of favourable reports by the development authority and the chief town planner, were the
essential preconditions for such exemption. The government’s decision must be based on
such reports was vitiated by non – consideration of relevant material.3

While performing price fixation, maximum deference is given to the decision of the price
fixing authority. It is for the government to decide what factors it should take into account. 4
The court may interfere if the interests of the consumers are not taken into consideration or a
reasonable return to the industry is not ensured.5

Where discretion is exercised either without taking relevant factors, or by taking irrelevant
factors, into consideration, it is held to have been exercised badly. Under the Commissions
of Inquiry Act, 1952, the government has the power to appoint a commission if it is of
opinion that it is necessary to do so. Until, recently the Court deferred to the will of the
government and seldom asked whether a commission was necessary or whether its terms of
reference should be this or that. 6 In Madhya Pradesh v. Arjun Singh7, the Supreme Court
held that a Government of Madhya Pradesh notification enlarging the terms of reference of a
commission appointed to inquire into the affairs of the Chratt Lottery, to include whether the
profits derived from such lottery were used for constructing a mansion, was based on
irrelevant materials and hence was void.

2
Indian Nut Products v. India (1994) 4 SCC 269
3
V M Kurian v. Kerala (2001) 4 SCC 215
4
M/s Shri Sitaram Sugar Ltd. v. India AIR 1990 SC 1277
5
Gupta Sugar Works v. Uttar Pradesh (1987) Supp SCC 476
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6
Siliguri Municipality v. Amalendu Das AIR 1984 SC 653
7
(1993) 1 SCC 51
Leaving out relevant consideration Administrative Law II

Under s 362 (2)(b) of the Companies Act, 1956, the Company Board has to approve the
extension of tenure of the managing agency of a company. The board rejected the application
of the Rampur Company for extension of the tenure of their managing agency. The board
took into account that VH Dalmia had been held guilt for improper conduct in relation to
several companies by the Vivian Bose Commission in the year 1946-47. Dalmia was the
managing director of Govan Brothers, which was the managing agency of the Rampur
Company. The High Court held that since the board had based its conclusions only on the
past conduct of the person, without taking into account his subsequent conduct and activities,
its decision was bad. The Supreme Court affirmed the decision of the High Court in Rampur
Distillery and chemical Co Ltd v. Company Law Board.8

The Companies Act, 1956 s 237 (b) provides that the Central Government may investigate
the affairs of any company if, in the opinion of the government, there are circumstances
suggesting that the affairs if the company are not running properly. On behalf of the Central
Government, the Company Law Board ordered an inquiry into the affairs of the appellant
company. That inquiry was challenged in Barium Chemicals Ltd v. Company Law Board.9
Two contentions were made:

1. That the order was mala fide because the minister of finance was interested in the
prosperity of a rival company, where his son was serving and ha brought undue
influence on the Company Law Board; and
2. The order was based on extraneous matters.

The first ground was rejected. However the majority upheld the second.

The reasons given by the Company Law Board for investigating the company affairs were:

i. There was delay and faulty planning of the project, resulting in double
expenditure and continuous loan to the company;
ii. The value of the company’s shares had gone down; and
iii. Some eminent persons had resigned from the board of directors and others had
declined the membership of the board.

Hidayatullah J observed that, from the above circumstances, the interference that there
was fraud in the company’s affairs seemed to be farfetched. According to Bachawat J, the
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8
(1970) 2 SCJ 89
9
AIR 1967 SC 295
Leaving out relevant consideration Administrative Law II

above reasons and the inference of fraud were not logically connected and according to
Shekat J reasons were not relevant to the grounds mentioned in the Act. The Court
observed:

“Therefore, the words, ‘reason to believe’ or ‘in the opinion of’ do not always lead to
the construction that the process of entertaining ‘reason of believe’ or the ‘the opinion’
is an altogether subjective process not leading itself even to a limited scrutiny by the
court that such ‘a reason to believe’ or ‘opinion’ was not formed on relevant facts or
within the limits… if it is shown that the circumstances do not exist or that they are
such that it is impossible for anyone to form an opinion there from suggestive of the
aforesaid things, the opinion is challengeable on the ground of non application of
mind or perversity or on the ground that it was formed on collateral grounds.”

In Rohitas Industries v. SD Agrawaal,10 an investigation ordered under s 237of the

Companies Act was once again held to be bad on the ground that the circumstances
shown by the Company Law Board did not lead to the conclusion of fraud on the part of
the company. The Company Law Board gave two reasons for the inquiry:

1. That there were complaints of misconduct against one of the leading directors of the
company in relation to other companies subject to his control, for which he was being
prosecuted, and
2. The company had arranged to sell for inadequate consideration, the preference shares
of the face value Rs three lakh of another company held by it. The court held that the
first reason was not relevant and the second was without evidence.

In Narendra Kumar v. India11, the consent of the CCI granted for the issue of shares (Rs.
50 Crore) and debentures (Rs. 516 Crores) by Reliance Petrochemicals Ltd (RPL) was
questioned. It was contended that the CCI ought not to have granted consent to RPL to
issue shares and debenture capital at an aggregate value of approximately Rs 600 Crore.
The main argument of the petitioner against the giving of such consent was that it was not
a sound investment. The purpose of the Capital Issues (Control) Ac, 1947 was to secure a
balanced investment of the country’s resources in industry, agriculture and social
services. All that the CCI was concerned with was to ensure that the invisible resources of
the country were properly utilised for priority purposes and were not involved in non
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10
AIR 1969 SC 707
11
AIR 1989 SC 2138
Leaving out relevant consideration Administrative Law II

essential projects or in a manner that ran counter to the accepted investment policies of
the government. However, the respondents – Government of India, CCI and RPL –
contended that the CCI was not responsible for the financial soundness of any scheme or
the correctness of any statement or opinion expressed in the prospectus of the company.

The Supreme Court rejected the contention. This judges said that whatever might have
been the position when the Act was enacted in 1947, ‘the present duties of the CCI have
to be construed in the context of the current situation in the country’. The Chief Justice
observed that the CCI ‘has also a role to play in ensuring that public interest does not
suffer as a consequence of the consent granted by him’. However, the court did not agree
to widen the responsibilities of the CCI beyond the range of expeditious implementation
of the scheme of the Act. In the Court’s view, the responsibilities of the CCI should be
restricted and limited to ensuring ‘that the issue to which he is granting consent is not,
patently and to his knowledge, so manifestly impracticable or financially risky as to
amount to a fraud on the public’. The CCI was, therefore, held to have exercised his
power on relevant consideration. In construing his fuctions narrowly, the court was
constrained by the parameters provided by the Capital Issues (Control) Act as well as by
practical exigencies, such as the lack of adequate staff at the CCI’s disposal.

Services matter:
Under the Prevention of Corruption Act, 1961, State sanction is required for prosecution of
public servants accused of corruption. Under s 197 of the CrPC, sanction of the government
is required for the prosecution of a public servant for any offence committed ‘while acting or
purporting to acting the discharge of his official duty’. It has been held that refusal of the
government to give the sanction for such prosecution is reviewable and can be set aside if
arbitrary.12The sanction issued by an authority on the direction of the High Court was held to
be vitiated by non-application of mind. 13 The discretion vested in the attorney
general/solicitor general to grant permission to prosecute a person for contempt of court was
also held the justifiable.14

The office of a district government counsel is a professional engagement and not an

appointment in government service. The incumbent is not entitled to continue as counsel until
she reaches the age of superannuation. Where however, refusal to renew the appointment was
12
Badrinath v. Tamil Nadu AIR 1986 Mad 3
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13
Mansukhlal Vithaladas Chauhan v. Gujarat (1997) 7 SCC 622
14
PN Duda v. P Shiv Shankar (1988) 3 SCC 167
Leaving out relevant consideration Administrative Law II

found to have been made on a nonexistent ground, it was held to be arbitrary. 15 Where a
doctor in a public hospital was relived of certain duties because a specialist was required to
perform them, it was held that the discontinuance of duties was not arbitrary. The power to
abolish a post, which may result in the holder thereof ceasing to be government servant, is
inherent in the right to create it. Whether or not a post should be retained is a policy decision.
But the decision should be taken in good faith and the action to abolish a post should not just
be pretext to get rid of an inconvenient incumbent.16

Where a government servant was compulsory retired on the subjective satisfaction of the
authority, based on adverse remarks that were not communicated to the person, the action
was not held to be arbitrary. Whether he was satisfied and whether the basis of his
satisfaction was proper could of course be challenged.17 The Supreme Court made it clear that
it was not for the court to see whether the decision to retire was justified or not. What would
be relevant for judicial review would be whether, upon that state of the record, a reasonable
prudent person would reach that decision.18

Compulsory retirement of a government servant on the basis of confidential reports of reports

of a remote period was quashed as having been based on irrelevant consideration.19

Under art 311 (2), second proviso (b) of the constitution, a government servant servant can be
dismissed or removed from service without holding an inquiry if the authority empowered to
dismiss her is satisfied that is not reasonably practical to hold such an inquiry. Where the
decision to dispense with an inquiry is taken, it is subject to judicial review as to relevance of
the grounds for not holding the inquiry. In the absence of the material to justify the not
holding the inquiry, such a decision could be quashed. 20 An employee against whom a
departmental inquiry was initiated and he had been under suspension- but there were no
adverse remarks in the confidential reports and he had successfully crossed efficiency bars at
the age of 50 and 55 – was served with a notice for premature retirement. It was held that
such premature retirement had been based on extraneous considerations.

15
Uttar Pradesh v. Ramesh Chandra Sharma AIR 1996 SC 864
16
K Rajendran v. Tamil Nadu (1982) 2 SCC 273
17
Baikuntha Nath Das v. Chief Distt Medical Officer, Baripada (1992) 2 SCC 299
18
Orissa v. Ram Chandra Das (1996) 5 SCC 331
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19
JD Shrivastava v. Madhya Pradesh AIR 1984 SC 630
20
Jaswant Singh v. Punjab (1991) 1 SCC 362
Leaving out relevant consideration Administrative Law II

Property matters:
Where agricultural land was acquired for urban development, an allegation that lands of other
persons were not acquired could not be successfully made because acquisition depended upon
necessity and suitability, which the administration alone could determine.21

A previous order of the same authority in a different case does not become a precedent.
Therefore, a subsequent order in a similar case cannot be challenged as being discriminatory
if it varies from the previous one. Where an order cancelling a lease on default of payment of
instalments by the respondents was challenged on the ground that in another case where
similar facts existed, the lease had not been cancelled and the High Court had upheld such a
contention, the Supreme Court held that such previous order could not be a relevant factor for
determining the validity of an administrative order. The court, it was held, had to consider
the validity of such an order independently, because the administrative authority is supposed
to apply its mind to each case separately. 22 As a matter of fact, although another similar order
may not be a precedent, inconsistently between such similar acts, in the absence of a
distinguishing element, could form the basis of an allegation of discrimination or mala fide
action on the part of an authority.

Where a municipal land lay vacant and the appellant applied for permission to use it as a
playground for children since it was adjacent to the appellant’s school, the dismissal of his
application and the allotment of land to a musical concert was held to be based on irrelevant
considerations.23

Where the urgency clause under section 17 (4) on the LAA was invoked, the fact that the
state government took more than six months in issuing a declaration under section 6 after the
acquisition notice under section 4 belied the claim of urgency. Possibility of encroachers
usurping the land if not acquired urgently was held to be an irrelevant fact to acquisition.
Where urgency clause was invoke to dispense with the inquiry under section 4 (1) for
acquiring land for a market yard, on the ground that the existing market yard was situated in
a filthy yard, on the ground that the existing market yard was situated in a filthy area without
necessary amenities it was held to be relevant material.

21
Bharat Singh v. Haryana (1988) 4 SCC 534
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22
Chandigarh Administration v. Jagjit Singh (1995) 1 SCC 745
23
Sri Vidya Mandir Education Society v. MAlleshwaram Sangeetha Sabha and Ors (1995) Supp 1 SCC 26
Leaving out relevant consideration Administrative Law II

Other cases:
Where renewal of a licence was a refused on the ground that it could not be issued to two
partnership firms having common partners, the decision of the collector under the Madhya
Pradesh Food grains Dealers Licensing Order, 1961 was quashed because it was based on
grounds extraneous to the requirements of the order. 24 Where an expert committee under s 7
of the Drugs and Cosmetics Act 1940 recommended withdrawal of certain drugs without
having them tested through clinical trials, it was held that the recommendation could not be
challenged on the ground that the committee did not consider the relevant matters. 25 Refusal
of a university to open a new law college in a district on the ground that there was already a
law college in that district was held arbitrary. The university should have considered the
student population of the district and then decided whether another college is required. It was
held that where prices of agricultural products were being fixed, not considering the general
crop prospects in respect of paddy during the Kharif season or not considering the current
economic situation prevalent in the state vitiated the decision.26

Preventive detention cases:

How far is the possibility of prosecuting a person for a crime a relevant consideration
to be taken into account by the detaining authority, so that if such a possibility is there
the person cannot be detained in preventive detention? The Supreme Court has shown
ambivalence in answering this question.

In Srilal Shaw v. State of West Bengal 27 , a preventive detention order was issued
against a person mainly on the ground that he had stolen railway property. But the
concerned person had documents to show that he had purchased the goods in question
in the open market. A criminal case filed against him was dropped and a detention
order passed instead. The order was declared to be bad. The court thought that it was a
typical case where, for no apparent reason, a person who could easily be prosecuted
under the punitive law was being preventively detained.

24
Phool Chand Narendrakumar v. Madhya Pradesh AIR 1970 MP 70
25
Systopic Laboratories (P) Ltd v. Prem Gupta AIR 1994 SC 205
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26
Gujarat v. Kalabhai Vallabhbhai (1998) 8 SCC 683
27
AIR 1975 SC 393
Leaving out relevant consideration Administrative Law II

In L.K. Das v. State of West Bengal 28 , it was held that the power of detention could
not be used on "simple, solitary incident" of theft of railway property, and the proper
course was to prosecute the person in a criminal court.

Conclusion
The judicial control has two faces. One is to compel the legislature to desist from
conferring too broad or uncabined discretionary powers. In India, the courts have
sought to spell out some limits on conferment of broad discretionary powers by in -
voking the Fundamental Rights guaranteed by the Constitution. This may involve
some substantive and procedural safeguards in the exercise of powers. The courts may
imply some substantive limits on the power. They may imply some procedural
safeguards, i.e. an adjudicatory body being required to follow natural justice. In other
cases, the relevant law may lay down some procedural norms.

Two, there is the need to have some post-decisional review mechanism to ensure that
administrative authorities discharge their functions according to law and within legal
limits—express or implied. To a considerable extent, this important role is discharged
by the courts.

The courts control the exercise of discretion by the administration and for this purpose
has evolved several norms. In addition, resort is being increasingly had for this
purpose to such institutions as tribunals and ombudsman. Today, the question of
control of discretionary powers is perhaps the most crucial and critical problem of the
modern administrative law.

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28
AIR 1975 SC 753
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Bibliography
1. JAIN, M.P.; JAIN S.N.; “Principles of Administrative Law”. Fifth
Edition, 2007; Wadhwa & Company Publishers

2. SATHE, S.P.; “Administrative Law”; 2007

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