Ajay Hasia Etc vs Khalid Mujib Sehravardi & Ors.

Etc on 13 November, 1980

Equivalent citations: 1981 AIR 487, 1981 SCR (2) 79
Author: P Bhagwati
Bench: Chandrachud, Y.V. ((Cj), Bhagwati, P.N., Krishnaiyer, V.R., Fazalali, Syed
Murtaza, Koshal, A.D.
PETITIONER:
AJAY HASIA ETC.

Vs.

RESPONDENT:
KHALID MUJIB SEHRAVARDI & ORS. ETC.

DATE OF JUDGMENT13/11/1980

BENCH:
BHAGWATI, P.N.
BENCH:
BHAGWATI, P.N.
CHANDRACHUD, Y.V. ((CJ)
KRISHNAIYER, V.R.
FAZALALI, SYED MURTAZA
KOSHAL, A.D.

CITATION:
1981 AIR 487 1981 SCR (2) 79
1981 SCC (1) 722

ACT:
Admission to Engineering College-Jammu & Kashmir
Regional Engineering College, Srinagar, registered as a
society under the Jammu & Kashmir Registration of Societies
Act, 1898-Whether a "State" under Article 12 of
the
Constitution and amenable to writ jurisdiction.
Viva voce test-Interview of each of the candidates
lasting only two or three minutes asking formal questions
relating to the candidates parentage and residence
and
without any relevance to the subject for which marks were
allocated, whether arbitrary-Allocation of 1/3 of the total
marks required for the qualifying examination for the
viva
voce-Whether bad, unreasonable and arbitrary-Whether
prescribing different admission procedures for candidates
belonging to the State of Jammu & Kashmir and candidates
belonging to other State is violative of the Equality Clause
under Article 14.

HEADNOTE:
Dismissing the writ petitions, the Court
^
HELD : (1). Having regard to the Memorandum of
Association and the Rules of the Society, the respondent
college is a State within the meaning of Article 12. The
composition of the Society is dominated by
the
representatives appointed by the Central Government and the
Governments of Jammu & Kashmir, Punjab, Rajasthan and Uttar
Pradesh with the approval of the Central Government. The
monies required for running the college are
provided
entirely by the Central Government and the Government of
Jammu & Kashmir and even if any other monies are to be
received by the Society, it can be done only with the
approval of the State and the Central Governments. The Rules
to be made by the Society are also required to have the
prior approval of the State and the Central Governments and
the accounts of the Society have also to be submitted to
both the Governments for their scrutiny and satisfaction.
The Society is also to comply with all such directions as
may be issued by the State Government with the approval of
the Central Government in respect of any matters dealt with
in the report of the Reviewing Committee. The control of the
State and the Central Governments is indeed so deep
and
pervasive that no immovable property of the Society can be
disposed of in any manner without the approval of both the
Governments. The State and the Central Governments have even
the power to appoint any other person or persons to be
members of the Society and any member of the Society other
than a member representing the State or the
Central
Government can be removed from the membership of the Society
by the State Government with the approval of the Central
Government. The Board of Governors, which is incharge of
general superintendence, direction and control of
the
affairs of the Society and of its income and property
is
also largely controlled by nominees of the State and the
Central Governments. The State Government and by reason of
the provision for approval, the Central Government also thus
have full control of the work-
80
ing of the Society and therefore, the Society is merely a
projection of the State and the Central Governments. The
voice is that of the State and the Central Governments. The
Society is an instrumentality or the agency of the State and
the Central Governments and it is an "authority" within the
meaning of Article 12. If the Society is, an
"authority"
and, therefore, the "State" within the meaning of Article
12, it must follow that it is subject to the constitutional
obligation under Article 14. [99F-H, 100 K-F]
(2) The expression "other authorities", in Article 12
must be given an interpretation where constitutional
fundamentals vital to the maintenance of human rights are at
stake, functional realism and not facial cosmetics must be
the diagnostic tool, for constitutional law must seek the
substance and not the form. The Government may act through
the instrumentality or agency of juridical persons to carry
out its functions, since, with the advent of the
welfare
State its new task have increased manifold. [90B-D]
It is, undoubtedly, true that the corporation is a
distinct juristic entity with a corporate structure of its
own and it carries on its functions on business principles
with a certain amount of autonomy which is necessary as well
as useful from the point of view of effective business
management, but behind the formal ownership which is cast in
the corporate mould, the reality is very much the deeply
pervasive presence of the Government. It is really
the
Government which acts through the instrumentality or agency
of the corporation and the juristic veil of corporate
personality worn for the purpose of convenience of
management and administration cannot be allowed
to
obliterate the true nature of the reality behind which is
the Government. It is clear that if a corporation is an
instrumentality or agency of the Government, it must be
subject to the same limitations in the field
of
constitutional law as the Government itself, though in the
eye of the law it would be a distinct and independent legal
entity. If the Government acting through its officers is
subject to certain constitutional limitations, it
must
follow a fortiorari that the Government acting through the
instrumentality or agency of a corporation should equally be
subject to the same limitations. If such a corporation were
to be free from the basic obligation to obey the Fundamental
Rights, it would lead to considerable erosion of
the
efficiency of the Fundamental Rights, for in that event the
Government would be enabled to override the Fundamental
Rights by adopting the stratagem of carrying out its
functions through the instrumentality or agency of a
corporation, while retaining control over it. The
Fundamental Rights would then be reduced to little more than
an idle dream or a promise of unreality. [91B-F]
The Courts should be anxious to enlarge the scope and
width of the Fundamental Rights by bringing within their
sweep every authority which is an instrumentality or agency
of the Government or through the corporate personality of
which the Government is acting, so as to subject the
Government in all its myriad activities, whether through
natural persons or through corporate entities, to the basic
obligation of the Fundamental Rights. The constitutional
philosophy of a democratic socialist republic requires the
Government to under take a multitude of
socioeconomic
operations and the Government, having regard to
the
practical advantages of functioning through the legal device
of a corporation, embarks on myriad commercial and economic
activities by resorting to the instrumentality or agency of
a corporation, but this contrivance of carrying on such
activities through a corporation cannot exonerate the
Government from implicit obedience to the Fundamental
Rights. To use the
81
corporate methodology is not to liberate the Government from
its basic obligation to respect the Fundamental Rights and
not to override them. The mantle of a corporation may be
adopted in order to free the Government from the inevitable
constraints of red-tapism and slow motion but by doing
so,
the Government cannot be allowed to play truant with the
basic human rights, otherwise it would be the easiest thing
for the government to assign to a plurality of corporations
almost every State business such as Post and Telegraph, TV,
Radio, Rail, Road and Telephones-in short every economic
activity-and thereby cheat the people of India out of the
Fundamental Rights guaranteed to them. That would be a
mockery of the Constitution and nothing short of treachery
and breach of faith with the people of India, because though
apparently the corporation will be carrying out these
functions, it will in truth and reality be the Government
which will be controlling the corporation and carrying out
these functions through the instrumentality or agency of the
corporation. Courts cannot by a process of judicial
construction allow the Fundamental Rights to be rendered
futile and meaningless and there by wipe out Chapter III
from the Constitution. That would be contrary to the
constitutional faith of the post-Menaka Gandhi era. It is
the Fundamental Rights which along with the Directive
Principles constitute the life force of the Constitution and
they must be quickened into effective action by meaningful
and purposive interpretation. If a corporation is found to
be a mere agency or surrogate of the Government, "in fact
owned by the Government, in truth controlled by
the
government and in effect an incarnation of the government,"
the court must not allow the enforcement of Fundamental
Rights to be frustrated by taking the view that it is not
the government and, therefore, not subject to the
constitutional limitations. Therefore, where a corporation
is an instrumentality or agency of the Government, it is an
authority within the meaning of Article 12 and, hence,
subject to the same basic obligation to obey the Fundamental
Rights as the government. [91G-H, 92A-G]
 R. D. Shetty v. The International Airport Authority of
India & Ors., [1979] 1 S.C.R. 1042 and U.P.
Warehousing
Corporation v. Vijay Narain, [1980] 3 S.C.C. 459, followed.
(3) The test for determining as to when a corporation
can be said to be an instrumentality or agency of Government
may be culled out from the judgment in the International
Airport Authority's case. They are not conclusive or
clinching, but they are merely indicative indicia which have
to be used with care and caution, because while stressing
the necessity of a wide meaning to be placed on
the
expression "other authorities", it must be realised that it
should not be stretched so far as to bring in every
autonomous body which has some nexus with the Government
with the sweep of the expression. A wide enlargement of the
meaning must be tempered by a wise limitation. The relevant
tests gathered from the decision in the International
Airport Authority's case may be summarized as: (i) "One
thing is clear that if the entire share capital of the
corporation is held by Government it would go a
long way
towards indicating that the Corporation is an
instrumentality or agency of Government. (ii) 'Where
the
financial assistance of the State is so much as to meet
almost entire expenditure of the corporation, it would
afford some indication of the corporation being impregnated
with governmental character.' (iii) 'It may also be a
relevant factor...... whether the corporation enjoys
monopoly status which is the State conferred or State
protected.' (iv) 'Existence of 'deep and pervasive State
control may afford an indication that the Corporation is a
state
82
agency or instrumentality.' (v) 'If the functions of the
corporation of public importance and closely
related to
governmental functions, it would be a relevant factor in
classifying the corporation an instrumentality or agency of
Government.' (vi) 'Specifically, if a department
of
Government is transferred to a corporation, it would be a
strong factor supportive of this inference" of the
corporation being an instrumentality or agency
of
Government."[96F-H, 97A-D]
It is immaterial for this purpose whether
the
corporation is created by a statute or under a statute. The
test is whether it is an instrumentality or agency of the
Government and not as to how it is created. The enquiry has
to be not as to how the juristic person is born but why it
has been brought into existence. The corporation may be a
statutory corporation created by a statute or it may be a
Government company or a company formed under the Companies
Act, 1956 or it may be a society registered under the
Societies Registration Act, 1860 or any other similar
statute. Whatever be its genetical origin, it would be an
"authority" within the meaning of Article 12 if it is an
instrumentality or agency of the Government and that would
have to be decided on a proper assessment of the facts in
the light of the relevant factors. The
concept of
instrumentality or agency of the Government is not limited
to a corporation created by a statute but is equally
applicable to a company or society and in a given case it
would have to be decided, on a consideration of the relevant
factors, whether the company or society is an
instrumentality or agency of the Government so as to come
within the meaning of the expression "authority" in Article
12. [97F-H, 98A-B]
 (4) Merely because a juristic entity may
be an
"authority" and, therefore, "State" within the meaning of
Article 12, it may not be elevated to the position of
"State" for the purpose of Articles 309, 310 and 311 which
find a place in Part XIV. The definition of "State" in
Article 12 which includes an "authority" within
the
territory of India or under the control of the Government of
India is limited in its application only to Part III and by
virtue of Article 36, to Part IV and it does not extend to
the other provisions of the Constitution and, hence, a
juristic entity which may be "State" for the
purpose of
Parts III and IV would not be so for the purpose of Part XIV
or any other provision of the Constitution. [98B-D]
S. L. Aggarwal v. Hindustan Steel Ltd., [1970] 3 S.C.R.
365; Sabhajit Tewary v. Union of India & Ors., [1975] 3,
S.C.R. 616 and Sukhdev Singh v. Bhagat Ram, [1975] 3 S.C.R.
619, explained and distinguished.
(5) Article 14 must not be identified with the doctrine
of classification. What Article 14 strikes at is
arbitrariness because any action that is arbitrary, must
necessarily involve negation of equality. The doctrine of
classification which is evolved by the courts is not para-
phrase of Article 14 nor is it the objective and end of that
Article. It is merely a judicial formula for determining
whether the legislative or executive action in question is
arbitrary and therefore constituting denial of equality. If
the classification is not reasonable and does not satisfy
the two conditions, namely, (1) that the classification is
founded on an intelligible differentia and (2)
that
differentia has a rational relation to the object sought to
be achieved by the impugned legislative or executive action,
the impugned legislative or executive action, would plainly
be arbitrary and the guarantee of equality under Article 14
would be breached. Wherever, therefore, there
is
arbitrariness in State action whether it be the
83
legislature or of the executive or of an "authority" under
Article 12, Article 14 immediately springs into action and
strikes down such State action. In fact, the concept of
reasonableness and non-arbitrariness pervades the entire
constitutional scheme and is a golden thread which
runs
through the whole of the fabric of the Constitution. [100G,
102D-F]
E.P. Royappa v. State of Tamil Nadu, [1974] 2 S.C.R.
348; Maneka Gandhi v. Union of India, [1978] 2 S.R. 621 and
R. D. Shetty v. The International Airport, Authority of
India, & Ors., [1979] 1 S.C.R. 1042, applied.
(6) The procedure adopted by the respondent Society
cannot be regard as arbitrary merely because it refused to
take into account the marks obtained by the candidates at
the qualifying examination but chose to regulate
the
admissions by relying on the entrance test. The entrance
test facilitates the assessment of the comparative talent of
the candidates by application of a uniform standard and
is
always preferable to evaluation of comparative merit on the
basis of marks obtained at the qualifying examination, when
the qualifying examination is held by two or more different
authorities, because lack of uniformity is bound to creep
into the assessment of candidates by different authorities
with different modes of examination. [103A-B, D-F]
(7) The oral interview test is undoubtedly not a very
satisfactory test for assessing and evaluating the capacity
and calibre of candidates, but in the absence of any better
test for measuring personal characteristics and traits, the
oral interview test must, at the present stage, be regarded
as not irrational or irrelevant though it is subjective and
based on first impression, its result is influenced by many
uncertain factors and it is capable of abuse. In the matter
of admission to college or even in the matter of public
employment, the oral interview test as presently held should
not be relied upon as an exclusive test, but it may be
resorted to only as an additional or supplementary test and,
moreover, great care must be taken to see that persons who
are appointed to conduct the oral interview test are men of
high integrity, calibre and qualification. [106C-E]
R.Chitra Lakha and Others v. State of Mysore
and
Others, [1964] 6 S.C.R. 368, followed.
(8) Having regard to the drawbacks and deficiencies in
the oral interview test and the conditions prevailing in the
country, particularly when there is deterioration in moral
values and corruption and nepotism are very much on the
increase, allocation of a high percentage of marks for the
oral interview as compared to the marks allocated for the
written test, is not free from the vice of arbitrariness.
The allocation of as high a percentage as 33 1/3 of the
total marks for oral interview suffers from the vice of
arbitrariness. [107A-D]
The court, however, to avoid immense hardship being
caused to those students in whose case the validity of the
selection cannot otherwise be questioned and who have nearly
completed three semesters and taking into consideration the
fact that even if the petitioners are ultimately found to be
deserving of selection on the application of the proper
test, it would not be possible to restore them to the
position as if they were admitted for the academic year
1979-80, which has run out long since declined to set aside
the selection made. The Court was, however, of the view that
under the existing circumstances.
84
allocation of more than 15% of the total marks for the oral
interview would be arbitrary and unreasonable. [107G-
H,
108A-F]
A. Peeriakaruppan v. State of Tamil Nadu, [1971] 2
S.C.R. 430; Miss Nishi Meghu v. State of Jammu & Kashmir &
Ors., [1980] 3 S.C.R. p. 1253, applied.
(9) There can be no doubt that if the interview did not
last for more than two or three minutes on an average and
the questions asked had no bearing on the factors required
to be taken into account the oral interview test would be
vitiated, because it would be impossible in such an
interview to assess the merit of a candidate with reference
to these factors. Here the absence of proper affidavit by
the members of the committee to the contrary leads to the
only conclusion that the selection made on the basis of such
test must be held to be arbitrary. However, if the marks
allocated for the oral interview do not exceed 15% of the
total marks and the candidates are properly interviewed and
relevant questions are asked with a view to assessing their
suitability with reference to the factors required to be
taken into consideration, the oral interview test would
satisfy the criterion of reasonableness and
non-
arbitrariness. Further it would be desirable if
the
interview of the candidates is tape-recorded, for in that
event there will be contemporaneous evidence to show what
were the questions asked to the candidates by the
interviewing committee and what were the answers given and
that will eliminate a lot of unnecessary controversy besides
acting as a check on the possible arbitrariness of the
interviewing committee. [109A-B, D-E, F-H]
JUDGMENT:

ORIGINAL JURISDICTION: Writ Petition Nos. 1304, 1262, 1119, 1118, 1574-75, 1373-74,
1244-45, 1230, 1494-97, 1566- 67, 1143, 1440, 1586, 1420-23, 1441-43, 1389, 1144, 1461,
1437-39, 1431, 1268, 1145, 1263 and 1331 of 1979.

(Under Article 32 of the Constitution) Anil Dev Singh, Lalit Kumar Gupta, Subhash Sharma,
C. P. Pandey and S. K. Sabharwal for the Petitioners in W.PS. 1389, 1437-39, 1262, 1497,
1586, 1230 and 1263 of 1979.

Y. S. Chitale, P. N. Duda, V. K. Pandita, R. Satish and E. C. Agarwala for the Petitioners in

W.P. Nos. 1241-43, 1495-96, 1566-67, 1423, 1143-44,1118-19,1494, 1145 and 1331 of
1979.

S. K. Bisiaria for the Petitioner in W.P. 1461/79. Rishi Kesh and B. Datta for the Petitioner
in W.Ps. 1373-74, 1304 and 1431/79.

Y. S. Chitale, D. N. Tiku, E. C. Agarwala, M. Mudgal, Ashok Kaul and Vineet Kumar for
the Petitioners in W.Ps. 1244-45, 1420-22 and 1440/79.

S.S. Khanduja for the Petitioners in W.Ps. 1268, 1574- 75/79.

S. N. Kacker and Altaf Ahmed for the appearing Respondents.

The Judgment of the Court was delivered by BHAGWATI, J. These writ petitions
under Article 32 of the Constitution challenge the validity of the admissions made to the
Regional Engineering College, Srinagar for the academic year 1979-80.

The Regional Engineering College, Srinagar (hereinafter referred to as the College) is one of
the fifteen Engineering Colleges in the country sponsored by the Government of India. The
College is established and its administration and management are carried on by a Society
registered under the Jammu and Kashmir Registration of Societies Act, 1898. The
Memorandum of Association of the Society in clause 3 sets out the objects for which the
Society is incorporated and they include amongst other things establishment of the college
with a view to providing instruction and research in such branches of engineering and
technology as the college may think fit and for the advancement of learning and knowledge
in such branches. Vide subclause (i). The Society is empowered by clause 3 sub- clause (ii)
of the Memorandum of Association to make rules for the conduct of the affairs of the Society
and to add to, amend, vary or rescind them from time to time with the approval of the
Government of Jammu and Kashmir State (hereinafter referred to as the State Government)
and the Central Government. Clause 3 sub-clause (iii) of the Memorandum of Association
confers power on the Society to acquire and hold property in the name of the State
Government. Sub-clause (v) of clause 3 of the Memorandum of Association contemplates
that monies for running the college would be provided by the State and Central Governments
and sub-clause (vi) requires the Society to deposit all monies credited to its fund in such
banks or to invest them in such manner as the Society may, with the approval of the State
Government decide. The accounts of the Society as certified by a duly appointed auditor are
mandatorily required by sub- clause (ix) of clause 3 of the Memorandum of Association to be
forwarded annually to the State and Central Governments. Clause 6 of the Memorandum of
Association empowers the State Government to appoint one or more persons to review the
working and progress of the Society, or the college and to hold inquiries into the affairs
thereof and to make a report and on receipt of any such report, the State Government has
power, with the approval of the Central Government, to take such action and issue such
directions as it may consider necessary in respect of any of the matters dealt with in the
report and the Society or the College, as the case may be, is bound to comply with such
directions. There is a provision made in clause 7 of the Memorandum of Association that in
case the Society or the college is not functioning properly, the State Government will have
the power to take over the administration and assets of the college with the prior approval of
the Central Government. The founding members of the Society are enumerated in clause 9 of
the Memorandum of Association and they are the Chairman to be appointed by the State
Government with the approval of the Central Government, two representatives of the State
Government, one representative of the Central Government, two representatives of the All
India Council for Technical Education to be nominated by the northern Regional Committee,
one representative of the University of Jammu and Kashmir, one non-official representative
of each of the Punjab, Rajasthan, U.P. and Jammu and Kashmir States to be appointed by the
respective Governments in consultation with the Central Government and the Principal who
shall also be the ex-officio Secretary.

The Rules of the Society are also important as they throw light on the nature of the Society.
Rule 3 clause (i) reiterates the composition of the Society as set out in clause 9 of the
Memorandum of Association and clause (ii) of that Rule provides that the State and the
Central Governments may by mutual consultation at any time appoint any other person or
persons to be member or members of the Society. Rule 6 vests the general superintendence,
direction and control of the affairs and its income and property in the governing body of the
Society which is called the Board of Governors. Rule 7 lays down the constitution of the
Board of Governors by providing that it shall consist of the Chief Minister of the State
Government as Chairman and the following as members : Three nominees of the State
Government, three nominees of the Central Government, one representative of the All India
Council for Technical Education, Vice-Chancellor of the University of Jammu and Kashmir,
two industrialists/technologists in the region to be nominated by the State Government, one
nominee of the Indian Institute of Technology in the region, one nominee of the University
Grants Commission two representatives of the Faculty of the College and the Principal of the
college as ex-officio member-Secretary. The State Government is empowered by rule 10 to
remove any member of the Society other than a member representing the State or Central
Government from the membership of the Society with the approval of the Central
Government. Clause (iv) of Rule 15 confers power on the Board to make bye-laws for
admission of students to various courses and clause (xiv) of that Rule empowers the Board to
delegate to a committee or to the Chairman such of its powers for the conduct of its business
as it may deem fit, subject to the condition that the action taken by the committee of the
Chairman shall be reported for confirmation at the next meeting of the Board. Clause (xv) of
Rule 15 provides that the Board shall have power to consider and pass resolution on the
annual report, the annual accounts and other financial estimates of the college, but the annual
report and the annual accounts together with the resolution passed thereon are required to be
submitted to the State and the Central Governments. The Society is empowered by Rule 24,
clause (i) to alter, extend or abridge any purpose or purposes for which it is established,
subject to the prior approval of the State and the Central Governments and clause (ii) of Rule
24 provides that the Rules may be altered by a Resolution passed by a majority of 2/3rd of
the members present at the meeting of the Society, but such alteration shall be with the
approval of the State and the Central Governments.

Pursuant to clause (iv) of Rule 15 of the Rules, the Board of Governors laid down the
procedure for admission of students to various courses in the college by a Resolution dated
4th June, 1974. We are not directly concerned with the admission procedure laid down by
this Resolution save and except that under this Resolution admissions to the candidates
belonging to the State of Jammu and Kashmir were to be given on the basis of comparative
merit to be determined by holding a written entrance test and a viva voce examination and
the marks allocated for the written test in the subjects of English, Physics, Chemistry and
Mathematics were 100, while for viva voce examination, the marks allocated were 50
divided as follows: (i) General Knowledge and Awareness-15; (ii) Broad understanding of
Specific Phenomenon-15; (iii) Extra-curricular activities-10 and (iv) General Personality
Trait-10, making up in the aggregate-50. The admissions to the college were governed by the
procedure laid down in this Resolution until the academic year 197980, when the procedure
was slightly changed and it was decided that out of 250 seats, which were available for
admission, 50% of the seats shall be reserved for candidates belonging to the Jammu &
Kashmir State and the remaining 50% for candidates belonging to other States including 15
seats reserved for certain categories of students. So far as the seats reserved for candidates
belonging to States other than Jammu & Kashmir were concerned, certain reservations were
made for candidates belonging to Scheduled Castes and Scheduled Tribes and sons and
wards of defence personnel killed or disabled during hostilities and it was provided that
"inter se merit will be determined on the basis of marks secured in the subjects of English,
Physics, Chemistry and Mathematics only". The provision made with regard to seats
reserved for candidates belonging to Jammu & Kashmir State was that "apart from 2 seats
reserved for the sons and daughters of the permanent college employees, reservations shall
be made in accordance with the Orders of Jammu and Kashmir Government for admission to
technical institutions and the seats shall be filled up on the basis of comparative merit as
determined under the following scheme, both for seats to be filled on open merit and for
reserved seats in each category separately; (1) marks for written test-100 and (2) marks for
viva voce examination-50, marking up in the aggregate-150. It was not mentioned expressly
that the marks for the written test shall be in the subjects of Physics, English, Chemistry and
Mathematics nor were the factors to be taken into account in the viva voce examination and
the allocation of marks for such factors indicated specifically in the admission procedure laid
down for the academic year 1979-80, but we were told and this was not disputed on behalf of
the petitioners in any of the writ petitions, that the subjects in which the written test was held
were English, Physics, Chemistry and Mathematics and the marks at the viva voce
examination were allocated under the same four heads and in the same manner as in the case
of admissions under the procedure laid down in the Resolution dated 4th June, 1974.

In or about April 1979, the college issued a notice inviting applications for admission to the
first semester of the B.E. course in various branches of engineering and the notice set out the
above admission procedure to be followed in granting admissions for the academic year
1979-80. The petitioners in the writ petitions before us applied for admission to the first
semester of the B.E. course in one or the other branch of engineering and they appeared in
the written test which was held on 16th and 17th June, 1979. The petitioners were thereafter
required to appear before a Committee consisting of three persons for viva voce test and they
were interviewed by the Committee. The case of the petitioners was that the interview of
each of them did not last for more than 2 or 3 minutes per candidate on an average and the
only questions which were asked to them were formal questions relating to their parentage
and residence and hardly any question was asked which would be relevant to any of the four
factors for which marks were allocated at the viva voce examination. When the admissions
were announced, the petitioners found that though they had obtained very good marks in the
qualifying examination, they had not been able to secure admission to the college because
the marks awarded to them at the viva voce examination were very low and candidates who
had much less marks at the qualifying examination, had succeeded in obtaining very high
marks at the viva voce examination and there by managed to secure admission in preference
to the petitioners. The petitioners filed before us a chart showing by way of comparison the
marks obtained by the petitioners on the one hand and some of the successful candidates on
the other at the qualifying examination, in the written test and at the viva voce exami-

nation. This chart shows beyond doubt that the successful candidates whose marks are given
in the chart had obtained fairly low marks at the qualifying examination as also in the written
test, but they had been able to score over the petitioners only on account of very high marks
obtained by them at the viva voce examination. The petitioners feeling aggrieved by this
mode of selection filed the present writ petitions challenging the validity of the admissions
made to the college on various grounds. Some of these grounds stand concluded by the
recent decision of this Court in Miss Nishi Maghu v. State of Jammu & Kasmir & Ors. and
they were therefore not pressed before us. Of the other grounds, only one was canvassed
before us and we shall examine it in some detail.

But before we proceed to consider the merits of this ground of challenge, we must dispose of
a preliminary objection raised on behalf of the respondents against the maintainability of the
writ petition. The respondents contended that the college is run by society which is not a
corporation created by a statute but is a society registered under the Jammu & Kashmir
Societies Registration Act, 1898 and it is therefore not an 'authority' within the meaning
of Art. 12 of the Constitution and no writ petition can be maintained against it, nor can any
complaint be made that it has acted arbitrarily in the matter of granting admissions and
violated the equality clause of the Constitution. Now it is obvious that the only ground on
which the validity of the admissions to the college can be assailed is that the society adopted
an arbitrary procedure for selecting candidates for admission to the college and this resulted
in denial of equality to the petitioners in the matter of admission violative of Art. 14 of the
Constitution. It would appear that prima facie protection against infraction of Art. 14 is
available only against the State and complaint of arbitrariness and denial of equality can
therefore be sustained against the society only if the society can be shown to be State for the
purpose of Art. 14. Now 'State' is defined in Art. 12 to include inter alia the Government of
India and the Government of each of the States and all local or other authorities within the
territory of India or under the control of the Government of India and the question therefore
is whether the Society can be said to be 'State' within the meaning of this definition.
Obviously the Society cannot be equated with the Government of India or the Government of
any State nor can it be said to be a local authority and therefore, it must come within the
expression "other authorities" if it is to fall within the definition of 'State'. That immediately
leads us to a consideration of the question as to what are the "other authorities" contemplated
in the definition of 'State' in Art. 13.

While considering this question it is necessary to bear in mind that an authority falling within
the expression "other authorities" is, by reason of its inclusion within the definition of 'State'
in Article 12, subject to the same constitutional limitations as the Government and is equally
bound by the basic obligation to obey the constitutional mandate of the Fundamental Rights
enshrined in Part III of the Constitution. We must therefore give such an interpretation to the
expression "other authorities" as will not stultify the operation and reach of the fundamental
rights by enabling the Government to its obligation in relation to the Fundamental Rights by
setting up an authority to act as its instrumentality or agency for carrying out its functions.
Where constitutional fundamentals vital to the maintenance of human rights are at stake,
functional realism and not facial cosmetics must be the diagnostic tool, for constitutional law
must seek the substance and not the form. Now it is obvious that the Government may act
through the instrumentality or agency of natural persons or it may employ the instrumentality
or agency of juridical persons to carry out its functions. In the early days when the
Government had limited functions, it could operate effectively through natural persons
constituting its civil service and they were found adequate to discharge governmental
functions which were of traditional vintage. But as the tasks of the Government multiplied
with the advent of the welfare State, it began to be increasingly felt that the frame work of
civil service was not sufficient to handle the new tasks which were often specialised and
highly technical in character and which called for flexibility of approach and quick decision
making. The inadequacy of the civil service to deal with these new problems came to be
realised and it became necessary to forge a new instrumentality or administrative device for
handing these new problems. It was in these circumstances and with a view to supplying this
administrative need that the corporation came into being as the third arm of the Government
and over the years it has been increasingly utilised by the Government for setting, up and
running public enterprises and carrying out other public functions. Today with increasing
assumption by the Government of commercial ventures and economic projects, the
corporation has become an effective legal contrivance in the hands of the Government for
carrying out its activities, for it is found that this legal facility of corporate instrument
provides considerable flexibility and elasticity and facilitates proper and efficient
management with professional skills and on business principles and it is blissfully free from
"departmental rigidity, slow motion procedure and hierarchy of officers". The Government in
many of its commercial ventures and public enterprises is resorting to more and more
frequently to this resourceful legal contrivance of a corporation because it has many practical
advantages and at the same time does not involve the slightest diminution in its ownership
and control of the undertaking. In such cases "the true owner is the State, the real operator is
the State and the effective controllorate is the State and accountability for its actions to the
community and to Parliament is of the State." It is undoubtedly true that the corporation is a
distinct juristic entity with a corporate structure of its own and it carries on its functions on
business principles with a certain amount of autonomy which is necessary as well as useful
from the point of view of effective business management, but behind the formal ownership
which is cast in the corporate mould, the reality is very much the deeply pervasive presence
of the Government. It is really the Government which acts through the instrumentality or
agency of the corporation and the juristic veil of corporate personality worn for the purpose
of convenience of management and administration cannot be allowed to obliterate the true
nature of the reality behind which is the Government. Now it is obvious that if a corporation
is an instrumentality or agency of the Government, it must be subject to the same limitations
in the field of constitutional law as the Government itself, though in the eye of the law it
would be a distinct and independent legal entity. If the Government acting through its
officers is subject to certain constitutional limitations, it must follow a fortiorari that the
Government acting through the instrumentality or agency of a corporation should equally be
subject to the same limitations. If such a corporation were to be free from the basic
obligation to obey the Fundamental Rights, it would lead to considerable erosion of the
efficiency of the Fundamental Rights, for in that event the Government would be enabled to
over-ride the Fundamental Rights by adopting the stratagem of carrying out its functions
through the instrumentality or agency of a corporation, while retaining control over it. The
Fundamental Rights would then be reduced to little more than an idle dream or a promise of
unreality. It must be remembered that the Fundamental Rights are constitutional guarantees
given to the people of India and are not merely paper hopes or fleeting promises and so long
as they find a place in the Constitution, they should not be allowed to be emasculated in their
application by a narrow and constricted judicial interpretation. The courts should be anxious
to enlarge the scope and width of the Fundamental Rights by bringing within their sweep
every authority which is an instrumentality or agency of the Government or through the
corporate personality of which the Government is acting, so as to subject the Government in
all its myriad activities, whether through natural persons or through corporate entities, to the
basic obligation of the Fundamental Rights. The constitutional philosophy of a democratic
socialist republic requires the Government to undertake a multitude of socioeconomic
operations and the Government, having regard to the practical advantages of functioning
through the legal device of a corporation, embarks on myriad commercial and economic
activities by resorting to the instrumentality or agency of a corporation, but this contrivance
of carrying on such activities through a corporation cannot exonerate the Government from
implicit obedience to the Fundamental Rights. To use the corporate methodology is not to
liberate the Government from its basic obligation to respect the Fundamental Rights and not
to over-ride them. The mantle of a corporation may be adopted in order to free the
Government from the inevitable constraints of red-tapism and slow motion but by doing so,
the Government cannot be allowed to play truant with the basic human rights. Otherwise it
would be the easiest thing for the government to assign to a plurality of corporations almost
every State business such as Post and Telegraph, TV and Radio, Rail Road and Telephones-
in short every economic activity-and there by cheat the people of India out of the
Fundamental Rights guaranteed to them. That would be a mockery of the Constitution and
nothing short of treachery and breach of faith with the people of India, because, though
apparently the corporation will be carrying out these functions, it will in truth and reality be
the Government which will be controlling the corporation and carrying out these functions
through the instrumentality or agency of the corporation. We cannot by a process of judicial
construction allow the Fundamental Rights to be rendered futile and meaningless and thereby
wipe out Chapter III from the Constitution. That would be contrary to the constitutional faith
of the post- Menaka Gandhi era. It is the Fundamental Rights which along with the Directive
Principles constitute the life force of the Constitution and they must be quickened into
effective action by meaningful and purposive interpretation. If a corporation is found to be a
mere agency or surrogate of the Government, "in fact owned by the Government, in truth
controlled by the government and in effect an incarnation of the government," the court must
not allow the enforcement of Fundamental Rights to be frustrated by taking the view that it is
not the government and therefore not subject to the constitutional limitations. We are clearly
of the view that where a corporation is an instrumentality or agency of the government, it
must be held to be an 'authority' within the meaning of Art. 12 and hence subject to the same
basic obligation to obey the Fundamental Rights as the government.

We may point out that this very question as to when a corporation can be regarded as an
'authority' within the meaning of Art. 12 arose for consideration before this Court in R. D.
Shetty v. The International Airport Authority of India & Ores. There, in a unanimous
judgment of three Judges delivered by one of us (Bhagwati, J) this Court pointed out:

"So far as India is concerned, the genesis of the emergence of corporations as

instrumentalities or agencies of Government is to be found in the Government of India
Resolution on Industrial Policy dated 6th April, 1948 where it was stated inter alia that
"management of State enterprises will as a rule be through the medium of public corporation
under the statutory control of the Central Government who will assume such powers as may
be necessary to ensure this." It was in pursuance of the policy envisaged in this and sub-
sequent resolutions on Industrial policy that corporations were created by Government for
setting up and management of public enterprises and carrying out other public functions.
Ordinarily these functions could have been carried out by Government departmentally
through its service personnel but the instrumentality or agency of the corporation was
resorted to in these cases having regard to the nature of the task to be performed. The
corporations acting as instrumentality or agency of Government would obviously be subject
to the same limitations in the field of constitutional and administrative law as Government
itself, though in the eye of the law, they would be distinct and independent legal entities. If
Government acting through its officers is subject to certain constitutional and public law
limitations, it must follow a fortiori that Government acting through instrumentality or
agency of corporations should equally be subject to the same limitations."

The Court then addressed itself to the question as to how to determine whether a corporation
is acting as an instrumentality or agency of the Government and dealing with that question,
observed:
"A corporation may be created in one of two ways. It may be either established by statute or
incorporated under a law such as the Companies Act 1956 or the Societies Registration
Act 1860. Where a Corporation is wholly controlled by Government not only in its policy
making but also in carrying out the functions entrusted to it by the law establishing it or by
the Charter of its incorporation, there can be no doubt that it would be an instrumentality or
agency of Government. But ordinarily where a corporation is established by statute, it is
autonomous in its working, subject only to a provision, often times made, that it shall be
bound by any directions that may be issued from time to time by Government in respect of
policy matters. So also a corporation incorporated under law is managed by a board of
directors or committee of management in accordance with the provisions of the statute under
which it is in corporated. When does such a corporation become an instrumentality or agency
of Government? Is the holding of the entire share capital of the Corporation by Government
enough or is it necessary that in addition there should be a certain amount of direct control
exercised by Government and, if so what should be the nature of such control? Should the
functions which the Corporation is charged to carry out possess any particular characteristic
or feature, or is the nature of the functions immaterial? Now, one thing is clear that if the
entire share capital of the corporation is held by Government, it would go a long way
towards indicating that the corporation is an instrumentality or agency of Government. But,
as is quite often the case, a corporation established by statute may have no shares or
shareholders, in which case it would be a relevant factor to consider whether the
administration is in the hands of a board of directors appointed by Government though this
consideration also may not be determinative, because even where the directors are appointed
by Government, they may be completely free from governmental control in the discharge of
their functions. What then are tests to determine whether a corporation established by statute
or incorporated under law is an instrumentality or agency of Government ? It is not possible
to formulate an inclusive or exhaustive test which would adequately answer this question.
There is no cut and dried formula, which would provide the correct division of corporations
into those which are instrumentalities or agencies of Government and those which are not."

The Court then proceeded to indicate the different tests, apart from ownership of the entire
share capital:

" .... if extensive and unusual financial assistance is given and the purpose of the Government
in giving such assistance coincides with the purpose for which the corporation is expected to
use the assistance and such purpose is of public character, it may be a relevant circumstance
supporting an inference that the corporation is an instrumentality or agency of
Government..... It may therefore be possible to say that where the financial assistance of the
State is so much as to meet almost entire expenditure of the corporation, it would afford
some indication of the corporation being impregnated with governmental character ..........But
a finding of State financial support plus an unusual degree of control over the management
and policies might lead one to characterise an operation as State action-Vide Sukhdev v.
Bhagatram [1975] 3 SCR 619 at 658. So also the existence of deep and pervasive State
control may afford an indication that the Corporation is a State agency or instrumentality. It
may also be a relevant factor to consider whether the corporation enjoys monopoly status
which is State conferred or State protected. There can be little doubt that State conferred or
State protected monopoly status would be highly relevant in assessing the aggregate weight
of the corporation's ties to the State."
"There is also another factor which may be regarded as having a bearing on this issue and it
is whether the operation of the corporation is an important public function. It has been held
in the United States in a number of cases that the concept of private action must yield to a
conception of State action where public functions are being performed. Vide Arthur S.
Miller: "The Constitutional Law of the Security State" (10) Stanford Law Review 620 at
664)." "It may be noted that besides the so-called traditional functions, the modern state
operates as multitude of public enterprises and discharges a host of other public functions. If
the functions of the corporation are of public importance and closely related to governmental
functions, it would be a relevant factor in classifying the corporation as an instrumentality or
agency of Government. This is precisely what was pointed out by Mathew, J., in Sukhdev v.
Bhagatram (supra) where the learned Judge said that "institutions engaged in matters of high
public interest of performing public functions are by virtue of the nature of the functions
performed government agencies. Activities which are too fundamental to the society are by
definition too important not to be considered government functions."

The court however proceeded to point out with reference to the last functional test:

"......... the decisions show that even this test of public or governmental character of the
function is not easy of application and does not invariably lead to the correct inference
because the range of governmental activity is broad and varied and merely because an
activity may be such as may legitimately be carried on by Government, it does not mean that
a corporation, which is otherwise a private entity, would be an instrumentality or agency of
Government by reason of carrying on such activity. In fact, it is difficult to distinguish
between governmental functions and non- governmental functions. Perhaps the distinction
between governmental and non-governmental functions is not valid any more in a social
welfare State where the laissez faire is an outmoded concept and Herbert Spencer's social
statics has no place. The contrast is rather between governmental activities which are private
and private activities which are governmental. [Mathew, J. Sukhdev v. Bhagatram (supra) at
p. 652]. But the public nature of the function, if impregnated with governmental character or
"tied or entwined with Government" or fortified by some other additional factor, may render
the corporation an instrumentality or agency of Government. Specifically, if a department of
Government is transferred to a corporation, it would be a strong factor supportive of the
inference."

These observations of the court in the International Airport Authority's case (supra) have our
full approval.

The tests for determining as to when a corporation can be said to be a instrumentality or

agency of Government may now be called out from the judgment in the International Airport
Authority's case. These tests are not conclusive or clinching, but they are merely indicative
indicia which have to be used with care and caution, because while stressing the necessity of
a wide meaning to be placed on the expression "other authorities", it must be realised that it
should not be stretched so far as to bring in every autonomous body which has some nexus
with the Government within the sweep of the expression. A wide enlargement of the
meaning must be tempered by a wise limitation. We may summarise the relevant tests
gathered from the decision in the International Airport Authority's case as follows (1) "One
thing is clear that if the entire share capital of the corporation is held by Government it would
go a long way towards indicating that the corporation is an instrumentality or agency of
Government." (2) "Where the financial assistance of the State is so much as to meet almost
entire expenditure of the corporation, it would afford some indication of the corporation
being impregnated with governmental character."

(3) "It may also be a relevant factor.......whether the corporation enjoys monopoly status
which is the State conferred or State protected."

(4) "Existence of deep and pervasive State control may afford an indication that the
Corporation is a State agency or instrumentality."

(5) "If the functions of the corporation of public importance and closely related to
governmental functions, it would be a relevant factor in classifying the corporation as an
instrumentality or agency of Government."

(6) "Specifically, if a department of Government is transferred to a corporation, it would be a

strong factor supportive of this inference of the corporation being an instrumentality or
agency of Government." If on a consideration of these relevant factors it is found that the
corporation is an instrumentality or agency of government, it would, as pointed out in the
International Airport Authority's case, be an 'authority' and, therefore, 'State' within the
meaning of the expression in Article 12.

We find that the same view has been taken by Chinnappa Reddy, J. in a subsequent decision
of this court in the U. P. Warehousing Corporation v. Vijay Narain and the observations
made by the learned Judge in that case strongly reinforced the view we are taking
particularly in the matrix of our constitutional system.

We may point out that it is immaterial for this purpose whether the corporation is created by
a statute or under a statute. The test is whether it is an instrumentality or agency of the
Government and not as to how it is created. The inquiry has to be not as to how the juristic
person is born but why it has been brought into existence. The corporation may be a statutory
corporation created by a statute or it may be a Government Company or a company formed
under the Companies Act, 1956 or it may be a society registered under the Societies
Registration Act, 1860 or any other similar statute. Whatever be its genetical origin, it would
be an "authority" within the meaning of Article 12 if it is an instrumentality or agency of the
Government and that would have to be decided on a proper assessment of the facts in the
light of the relevant factors. The concept of instrumentality or agency of the Government is
not limited to a corporation created by a statute but is equally applicable to a company or
society and in a given case it would have to be decided, on a consideration of the relevant
factors, whether the company or society is an instrumentality or agency of the Government
so as to come within the meaning of the expression "authority" in Article

12. It is also necessary to add that merely because a juristic entity may be an "authority" and
therefore "State" within the meaning of Article 12, it may not be elevated to the position of
"State" for the purpose of Articles 309, 310 and 311 which find a place in Part XIV. The
definition of "State" in Article 12 which includes an "authority" within the territory of India
or under the control of the Government of India is limited in its application only to Part III
and by virtue of Article 36, to Part IV: it does not extend to the other provisions of the
Constitution and hence a juristic entity which may be "State" for the purpose of Parts III and
IV would not be so for the purpose of Part XIV or any other provision of the Constitution.
That is why the decisions of this Court in S. L. Aggarwal v. Hindustan Steel Ltd. and other
cases involving the applicability of Article 311 have no relevance to the issue before us.

The learned counsel appearing on behalf of the respondents Nos. 6 to 8, however, relied
strongly on the decision in Sabhajit Tewary v. Union of India & Ors(2) and contended that
this decision laid down in no uncertain terms that a society registered under the Societies
Registration Act, 1860 can never be regarded as an "authority" within the meaning of Article
12. This being a decision given by a Bench of five Judges of this Court is undoubtedly
binding upon us but we do not think it lays down any such proposition as is contended on
behalf of the respondents. The question which arose in this case was as to whether the
Council of Scientific and Industrial Research which was juridically a society registered under
the Societies Registration Act, 1860 was an "authority" within the meaning of Article
12. The test which the Court applied for determining this question was the same as the one
laid down in the International Airport Authority's case and approved by us, namely, whether
the Council was an instrumentality or agency of the Government. The Court implicitly
assented to the proposition that if the Council were an agency of the Government, it would
undoubtedly be an "authority". But, having regard to the various features enumerated in the
judgment, the Court held that the Council was not an agency of the Government and hence
could not be regarded as an "authority". The Court did not rest its conclusion on the ground
that the Council was a society registered under the Societies Registration Act, 1860, but
proceeded to consider various other features of the Council for arriving at the conclusion that
it was not an agency of the Government and therefore not an "authority". This would have
been totally unnecessary if the view of the Court were that a society registered under
the Societies Registration Act can never be an "authority" within the meaning of Article 12.

The decision in Sukhdev Singh v. Bhagat Ram (1975) 3 SCR 619 was also strongly relied
upon by the learned counsel for respondents Nos. 6 to 8 but we fail to see how this decision
can assist the respondents in repelling the reasoning in the International Airport Authority's
case or contending that a company or society formed under a statute can never come within
the meaning of the expression "authority" in Article 12. That was a case relating to three
juristic bodies, namely, the Oil and Natural Gas Commission, the Industrial Finance
Corporation and the Life Insurance Corporation and the question was whether they were
"State" under Article 12. Each of these three juristic bodies was a corporation created by a
statute and the Court by majority held that they were "authorities" and therefore "State"
within the meaning of Article 12. The Court in this case was not concerned with the question
whether a company or society formed under a statute can be an "authority" or not and this
decision does not therefore contain anything which might even remotely suggest that such a
company or society can never be an "authority". On the contrary, the thrust of the logic in the
decision, far from being restrictive, applies to all juristic persons alike, irrespective whether
they are created by a statute or formed under a statute.

It is in the light of this discussion that we must now proceed to examine whether the Society
in the present case is an "authority" falling within the definition of "State" in Article 12. Is it
an instrumentality or agency of the Government? The answer must obviously be in the
affirmative if we have regard to the Memorandum of Association and the Rules of the
Society. The composition of the Society is dominated by the representatives appointed by the
Central Government and the Governments of Jammu & Kashmir, Punjab, Rajasthan and
Uttar Pradesh with the approval of the Central Government. The monies required for running
the college are provided entirely by the Central Government and the Government of Jammu
& Kashmir and even if any other monies are to be received by the Society, it can be done
only with the approval of the State and the Central Governments. The Rules to be made by
the Society are also required to have the prior approval of the State and the Central
Governments and the accounts of the Society have also to be submitted to both the
Governments for their scrutiny and satisfaction. The Society is also to comply with all such
directions as may be issued by the State Government with the approval of the Central
Government in respect of any matters dealt with in the report of the Reviewing Committee.
The control of the State and the Central Governments is indeed so deep and pervasive that no
immovable property of the Society can be disposed of in any manner without the approval of
both the Governments. The State and the Central Governments have even the power to
appoint any other person or persons to be members of the Society and any member of the
Society other than a member representing the State or the Central Government can be
removed from the membership of the Society by the State Government with the approval of
the Central Government. The Board of Governors, which is in charge of general
superintendence, direction and control of the affairs of Society and of its income and
property is also largely controlled by nominees of the State and the Central Governments. It
will thus be seen that the State Government and by reason of the provision for approval, the
Central Government also, have full control of the working of the Society and it would not be
incorrect to say that the Society is merely a projection of the State and the Central
Governments and to use the words of Ray, C.J. in Sukhdev Singh's case (supra), the voice is
that of the State and the Central Governments and the hands are also of the State and the
Central Governments. We must, therefore, hold that the Society is an instrumentality or
agency of the State and the Central Governments and it is an 'authority' within the meaning
of Art. 12.

If the Society is an "authority" and therefore "State" within the meaning of Article 12, it must
follow that it is subject to the constitutional obligation under Article 14. The true scope and
ambit of Article 14 has been the subject matter of numerous decisions and it is not necessary
to make any detailed reference to them. It is sufficient to state that the content and reach
of Article 14 must not be confused with the doctrine of classification. Unfortunately, in the
early stages of the evolution of our constitutional law, Article 14 came to be identified with
the doctrine of classification because the view taken was that Article forbids discrimination
and there would be no discrimination where the classification making the differentia fulfils
two conditions, namely, (i) that the classification is founded on an intelligible differentia
which distinguishes persons or things that are grouped together from others left out of the
group; and (ii) that differentia has a rational relation to the object sought to be achieved by
the impugned legislative or executive action. It was for the first time in E.P. Royappa v. State
of Tamil Nadu that this Court laid bare a new dimension of Article 14 and pointed out that
Article has highly activist magnitude and it embodies a guarantee against arbitrariness. This
Court speaking through one of us (Bhagwati, J.) said :

"The basic principle which therefore informs both Articles 14 and 16 is equality and
inhibition against discrimination. Now, what is the content and reach of this great equalising
principle ? It is a founding faith, to use the words of Bose, J., "a way of life", and it must not
be subjected to a narrow pedantic or lexicographic approach. We cannot countenance any
attempt to truncate its all-embracing scope and meaning, for to do so would be to violate its
activist magnitude. Equality is a dynamic concept with many aspects and dimensions and it
cannot be "cribbled, cabined and confined" within traditional and doctrinaire limits. From a
positivistic point of view, equality is antithetic to arbitrariness. In fact, equality and
arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other,
to the whim and caprice of an absolute monarch. Where an act is arbitrary it is implicit in it
that it is unequal both according to political logic and constitutional law and is therefore
violative of Art. 14, and if it affects any matter relating to public employment, it is also
violative of Art. 16. Articles 14 and 16 strike at arbitrariness in State action and ensure
fairness and equality of treatment."

This vital and dynamic aspect which was till then lying latent and submerged in the few
simple but pregnant words of Article 14 was explored and brought to light in Royappa's case
and it was reaffirmed and elaborated by this Court in Maneka Gandhi v. Union of
India where this Court again speaking through one of us (Bhagwati, J.) observed :

"Now the question immediately arises as to what is the requirement of Article 14 : what is
the content and reach of the great equalising principle enunciated is this article ? There can
be no doubt that it is a founding faith of the Constitution. It is indeed the pillar on which rests
securely the foundation of our democratic republic. And, therefore, it must not be subjected
to a narrow, pedantic or lexicographic approach. No attempt should be made to truncate its
all-embracing scope and meaning for, to do so would be to violate its activist magnitude.
Equality is a dynamic concept with many aspects and dimensions and it cannot be
imprisoned within traditional and doctrinaire limits...............Article 14 strikes at arbitrariness
in State action and ensures fairness and equality of treatment. The principle of
reasonableness, which legally as well as philosophically, is an essential element of equality
or non-arbitrariness pervades Article 14 like a brooding omnipresence."

This was again reiterated by this Court in International Airport Authority's case (supra) at
page 1042 of the Report. It must therefore now be taken to be well settled that what Article
14 strikes at is arbitrariness because any action that is arbitrary, must necessarily involve
negation of equality. The doctrine of classification which is evolved by the courts is not para-
phrase of Article 14 nor is it the objective and end of that Article. It is merely a judicial
formula for determining whether the legislative or executive action in question is arbitrary
and therefore constituting denial of equality. If the classification is not reasonable and does
not satisfy the two conditions referred to above, the impugned legislative or executive action
would plainly be arbitrary and the guarantee of equality under Article 14 would be breached.
Wherever therefore there is arbitrariness in State action whether it be of the legislature or of
the executive or of "authority" under Article 12, Article 14 immediately springs into action
and strikes down such State action. In fact, the concept of reasonableness and non-
arbitrariness pervades the entire constitutional scheme and is a golden thread which runs
though the whole of the fabric of the Constitution.

We may now turn to the merits of the controversy between the parties. Though several
contentions were urged in the writ petitions, challenging the validity of the admissions made
to the college, they were not all pressed before us and the principal contention that was
advanced was that the society acted arbitrarily in the matter of granting of admissions, first
by ignoring the marks obtained by the candidates at the qualifying examination; secondly by
relying on viva voce examination as a test for determining comparative merit of the
candidates; thirdly by allocating as many as 50 marks for the viva voce examination as
against 100 marks allocated for the written test and lastly, by holding superficial interviews
lasting only 2 or 3 minutes on an average and asking questions which had no relevance to
assessment of the suitability of the candidates with reference to the four factors required to
be considered at the viva voce examination. Now so far as the challenge on the first count is
concerned, we do not think it is at all well-founded. It is difficult to appreciate how a
procedure for admission which does not take into account the marks obtained at the
qualifying examination, but prefers to test the comparative merit of the candidates by
insisting on an entrance examination can ever be said to be arbitrary. It has been pointed out
in the counter affidavit filed by H. L. Chowdhury on behalf of the college that there are two
universities on two different dates and the examination by the Board of Secondary Education
for Jammu is also held on a different date than the examination by the Board of Secondary
Education for Kashmir and the results of these examinations are not always declared before
the admissions to the college can be decided. The College being the only institution for
education in engineering courses in the State of Jammu & Kashmir has to cater to the needs
of both the regions and it has, therefore, found it necessary and expedient to regulate
admissions by holding an entrance test, so that the admission process may not be held up on
account of late declaration of results of the qualifying examination in either of the two
regions. The entrance test also facilitates the assessment of the comparative talent of the
candidates by application of a uniform standard and is always preferable to evaluation of
comparative merit on the basis of marks obtained at the qualifying examination, when the
qualifying examination is held by two or more different authorities, because lack of
uniformity is bound to creep into the assessment of candidates by different authorities with
different modes of examination. We would not, therefore, regard the procedure adopted by
the society as arbitrary merely because it refused to take into account the marks obtained by
the candidates at the qualifying examination, but chose to regulate the admissions by relying
on the entrance test.

The second ground of challenge questioned the validity of viva voce examination as a
permissible test for selection of candidates for admission to a college. The contention of the
petitioners under this ground of challenge was that viva voce examination does not afford a
proper criterion for assessment of the suitability of the candidates for admission and it is a
highly subjective and impressionistic test where the result is likely to be influenced by many
uncertain and imponderable factors such as predelictions and prejudices of the interviewers,
his attitudes and approaches, his pre-conceived notions and idiosyncrasies and it is also
capable of abuse because it leaves scope for discrimination, manipulation and nepotism
which can remain undetected under the cover of an interview and moreover it is not possible
to assess the capacity and calibre of a candidate in the course of an interview lasting only for
a few minutes and, therefore, selections made on the basis of oral interview must be regarded
as arbitrary and hence violative of Art. 14. Now this criticism cannot be said to be wholly
unfounded and it reflects a point of view which has certainly some validity. We may quote
the following passage from the book on "Public Administration in Theory and Practice" by
M. P. Sharma which voices a far and balanced criticism of the oral interview method :

"The oral test of the interview has been much criticised on the ground of its subjectivity and
uncertainty. Different interviews have their own notions of good personality. For some, it
consists more in attractive physical appearance and dress rather than anything else, and with
them the breezy and shiny type of candidate scores highly while the rough uncut diamonds
may go unappreciated. The atmosphere of the interview is artificial and prevents some
candidates from appearing at their best. Its duration is short, the few questions of the hit-or-
miss type, which are put, may fail to reveal the real worth of the candidate. It has been said
that God takes a whole life time to judge a man's worth while interviewers have to do it in a
quarter of an hour. Even at it's best, the common sort of interview reveals but the superficial
aspects of the candidate's personality like appearance, speaking power, and general address.
Deeper traits of leadership, tact, forcefulness, etc. go largely undetected. The interview is
often in the nature of desultory conversation. Marking differs greatly from examiner to
examiner. An analysis of the interview results show that the marks awarded to candidates
who competed more than once for the same service vary surprisingly. All this shows that
there is a great element of chance in the interview test. This becomes a serious matter when
the marks assigned to oral test constitute a high proportion of the total marks in the
competition.

01 Glenn Stahl points out in his book on "Public Personnel Administration" that there are
three disadvantages from which the oral test method suffers, namely, "(1) the difficulty of
developing valid and reliable oral tests; (2) the difficulty of securing a reviewable record on
an oral test; and (3) public suspicion of the oral test as a channel for the exertion of political
influence" and we may add, other corrupt, nepotistic or extraneous considerations. The
learned author then proceeds to add in a highly perceptive and critical passage :
"The oral examination has failed in the past in direct proportion to the extent of its misuse. It
is a delicate instrument and, in inexpert hands, a dangerous one. The first condition of its
successful use is the full recognition of its limitations. One of the most prolific sources of
error in the oral has been the failure on the part of examiners to understand the nature of
evidence and to discriminate between that which was relevant, material and reliable and that
which was not. It also must be remembered that the best oral interview provides opportunity
for analysis of only a very small part of a person's total behaviour. Generalizations from a
single interview regarding an individual's total personality pattern have been proved
repeatedly to be wrong."

But, despite all this criticism, the oral interview method continues to be very much in vogue
as a supplementary test for assessing the suitability of candidates wherever test of personal
traits is considered essential. Its relevance as a test for determining suitability based on
personal characteristics has been recognised in a number of decisions of this Court which are
binding upon us. In the first case on the point which came before this Court, namely, R.
Chitra Lekha and Others v. State of Mysore and Others this Court pointed out :

"In the field of education there are divergent views as regards the mode of testing the
capacity and calibre of students in the matter of admissions to colleges. Orthodox
educationists stand by the marks obtained by a student in the annual examination. The
modern trend of opinion insists upon other additional tests, such as interview, performance in
extra- curricular activities, personality test, psychiatric tests etc. Obviously we are not in a
position to judge which method is preferable or which test is the correct
one.................................................... ..... The scheme of selection, however, perfect it may be
on paper, may be abused in practice. That it is capable of abuse is not a ground for quashing
it. So long as the order lays down relevant objective criteria and entrusts the business of
selection to quali-
fied persons, this Court cannot obviously have any say in the matter.

and on this view refused to hold the oral interview test as irrelevant or arbitrary. It was also
pointed out by this Court in A. Peeriakaruppan v. State of Tamil Nadu & Ors :

"In most cases, the first impression need not necessarily be the past impression, but under the
existing conditions, we are unable to accede to the contentions of the petitioners that the
system of interview as in vogue in this country is so defective as to make it useless."

It is therefore not possible to accept the contentions of the petitioners that the oral interview
test is so defective that selecting candidates for admission on the basis of oral interview in
addition to written test must be regarded as arbitrary. The oral interview test is undoubtedly
not a very satisfactory test for assessing and evaluating the capacity and calibre of
candidates, but in the absence of any better test for measuring personal characteristics and
traits, the oral interview test must, at the present stage, be regarded as not irrational or
irrelevant though it is subjective and based on first impression, its result is influenced by
many uncertain factors and it is capable of abuse. We would, however, like to point out that
in the matter of admission to college or even in the matter of public employment, the oral
interview test as presently held should not be relied upon as an exclusive test, but it may be
resorted to only as an additional or supplementary test and, moreover, great care must be
taken to see that persons who are appointed to conduct the oral interview test are men of high
integrity, calibre and qualification.

So far as the third ground of challenge is concerned, we do not think it can be dismissed as
unsubstantial. The argument of the petitioners under this head of challenge was that even if
oral interview may be regarded in principle as a valid test for selection of candidates for
admission to a college, it was in the present case arbitrary and unreasonable since the marks
allocated for the oral interview were very much on the higher side as compared with the
marks allocated for the written test. The marks allocated for the oral interview were 50 as
against 100 allocated for the written test, so that the marks allocated for the oral interview
came to 33 1/3% of the total number of marks taken into account for the purpose of making
the selection. This, contended the petitioners, was beyond all reasonable proportion and
rendered the selection of the candidates arbitrary and violative of the equality clause of the
Constitution. Now there can be no doubt that, having regard to the drawbacks and
deficiencies in the oral interview test and the conditions prevailing in the country,
particularly when there is deterioration in moral values and corruption and nepotism are very
much on the increase, allocation of a high percentage of marks for the oral interview as
compared to the marks allocated for the written test, cannot be accepted by the Court as free
from the vice of arbitrariness. It may be pointed out that even in Peeriakaruppan's case
(supra), where 75 marks out of a total of 275 marks were allocated for the oral interview, this
Court observed that the marks allocated for interview were on the high-side. This Court also
observed in Miss Nishi Maghu's case (supra): "Reserving 50 marks for interview out of a
total of 150... does seem excessive, especially when the time spent was not more than 4
minutes on each candidate". There can be no doubt that allocating 33 1/3 of the total marks
for oral interview is plainly arbitrary and unreasonable. It is significant to note that even for
selection of candidates for the Indian Administrative Service, the Indian Foreign Service and
the Indian Police Service, where the personality of the candidate and his personal
characteristics and traits are extremely relevant for the purpose of selection, the marks
allocated for oral interview are 250 as against 1800 marks for the written examination,
constituting only 12.2% of the total marks taken into consideration for the purpose of making
the selection. We must, therefore, regard the allocation of as high a percentage as 33 1/3 of
the total marks for the oral interview as infecting the admission procedure with the vice of
arbitrariness and selection of candidates made on the basis of such admission procedure
cannot be sustained. But we do not think we would be justified in the exercise of our
discretion in setting aside the selections made for the academic year 1979-80 after the lapse
of a period of about 18 months, since to do so would be to cause immense hardship to those
students in whose case the validity of the selection cannot otherwise be questioned and who
have nearly completed three semesters and, moreover, even if the petitioners are ultimately
found to be deserving of selection on the application of the proper test, it would not be
possible to restore them to the position as if they were admitted for the academic year 1979-
80, which has run out long since. It is true there is an allegation of mala fides against the
Committee which interviewed the candidates and we may concede that if this allegation were
established, we might have been inclined to interfere with the selections even after the lapse
of a period of 18 months, because the writ petitions were filed as early as October-
November, 1979 and merely because the Court could not take-up the hearing of the writ
petitions for such a long time should be no ground for denying relief to the petitioners, if
they are otherwise so entitled. But we do not think that on the material placed before us we
can sustain the allegation of mala fides against the Committee. It is true, and this is a rather
disturbing feature of the present cases, that a large number of successful candidates
succeeded in obtaining admission to the college by virtue of very high marks obtained by
them at the viva voce examination tilted the balance in their favour, though the marks
secured by them at the qualifying examination were much less than those obtained by the
petitioners and even in the written test, they had fared much worse than the petitioners. It is
clear from the chart submitted to us on behalf of the petitioners that the marks awarded at the
interview are by and large in inverse proportion to the marks obtained by the candidates at
the qualifying examination and are also, in a large number of cases, not commensurate with
the marks obtained in the written test. The chart does create a strong suspicion in our mind
that the marks awarded at the viva voce examination might have been manipulated with a
view to favouring the candidates who ultimately came to be selected, but suspicion cannot
take the place of proof and we cannot hold the plea of mala fides to be established. We need
much more cogent material before we can hold that the Committee deliberately manipulated
the marks at the viva voce examination with a view to favouring certain candidates as against
the petitioners. We cannot, however, fail to mention that this is a matter which required to be
looked into very carefully and not only the State Government, but also the Central
Government which is equally responsible for the proper running of the college, must take
care to see that proper persons are appointed on the interviewing committees and there is no
executive interference with their decision-making process. We may also caution the
authorities that though, in the present case, for reasons which we have already given, we are
not interfering with the selection for the academic year 1979- 80, the selections made for the
subsequent academic years would run the risk of invalidation if such a high percentage of
marks is allocated for the oral interview. We are of the view that, under the existing
circumstances, allocation of more than 15% of the total marks for the oral interview would
be arbitrary and unreasonable and would be liable to be struck down as constitutionally
invalid.

The petitioners, arguing under the last ground of challenge, urged that the oral interview as
conducted in the present case was a mere pretence or farce, as it did not last for more than 2
or 3 minutes per candidate on an average and the questions which were asked were formal
questions relating to parentage and residence of the candidate and hardly any question was
asked which had relevance to assessment of the suitability of the candidate with reference to
any of the four factors required to be considered by the Committee. When the time spent on
each candidate was not more 2 or 3 minutes on an average, contended the petitioners, how
could the suitability of the candidate be assessed on a consideration of the relevant factors by
holding such an interview and how could the Committee possibly judge the merit of the
candidate with reference to these factors when no questions bearing on these factors were
asked to the candidate. Now there can be no doubt that if the interview did not take more
than 2 or 3 minutes on an average and the questions asked had no bearing on the factors
required to be taken into account, the oral interview test would be vitiated, because it would
be impossible in such an interview to assess the merit of a candidate with reference to these
factors. This allegation of the petitioners has been denied in the affidavit in reply filed by H.
L. Chowdhury on behalf of the college and it has been stated that each candidate was
interviewed for 6 to 8 minutes and "only the relevant questions on the aforesaid subjects
were asked". If this statement of H. L. Chowdhury is correct, we cannot find much fault with
the oral interview test held by the Committee. But we do not think we can act on this
statement made by H. L. Chowdhury, because there is nothing to show that he was present at
the interviews and none of the three Committee members has come forward to make an
affidavit denying the allegation of the petitioners and stating that each candidate was
interviewed for 6 to 8 minutes and only relevant questions were asked. We must therefore,
proceed on the basis that the interview of each candidate did not last for more than 2 or 3
minutes on an average and hardly any questions were asked having bearing on the relevant
factors. If that be so, the oral interview test must be held to be vitiated and the selection made
on the basis of such test must be held to be arbitrary. We are, however, not inclined for
reasons already given, to set aside the selection made for the academic year 1979-80, though
we may caution the State Government and the Society that for the future academic years,
selections may be made on the basis of observation made by us in this judgment lest they
might run the risk of being struck down. We may point out that, in our opinion, if the marks
allocated for the oral interview do not exceed 15% of the total marks and the candidates are
properly interviewed and relevant questions are asked with a view to assessing their
suitability with reference to the factors required to be taken into consideration, the oral
interview test would satisfy the criterion of reasonableness and non-arbitrariness. We think
that it would also be desirable if the interview of the candidates is tape-recorded, for in that
event there will be contemporaneous evidence to show what were the questions asked to the
candidates by the interviewing committee and what were the answers given and that will
eliminate a lot of unnecessary controversy besides acting as a check on the possible
arbitrariness of the interviewing committee.

We may point out that the State Government, the Society and the College have agreed before
us that the best fifty students, out of those who applied for admission for the academic year
1979-80 and who have failed to secure admission so far, will be granted admission for the
academic year 1981-82 and the seats allocated to them will be in addition to the normal
intake of students in the College. We order accordingly.

Subject to the above direction, the writ petitions are dismissed, but having regard to the facts
and circumstances of the present cases, we think that a fair order of costs would be that each
party should bear and pay its own costs of the writ petitions.

Petitions dismissed.

Equivalent citations: 1979 AIR 1628, 1979 SCR (3)1014

Author: P Bhagwati
Bench: Bhagwati, P.N.
PETITIONER:
RAMANA DAYARAM SHETTY

Vs.

RESPONDENT:
THE INTERNATIONAL AIRPORT AUTHORITY OF INDIA AND
ORS.

DATE OF JUDGMENT04/05/1979

BENCH:
BHAGWATI, P.N.
BENCH:
BHAGWATI, P.N.
TULZAPURKAR, V.D.
PATHAK, R.S.

HEADNOTE:
The first respondent, by a public
notice, invited
tenders for putting up and running a second class
restaurant
and two snack bars at the International Air
port, Bombay.
the notice stated in Paragraph (1) that sealed
tenders in
the prescribed form were invited from
registered second
class hoteliers having at least five years'
experience for
putting up and running a second class
restaurant and two
snack bars at the Bombay Airport for a period of
three years
Paragraph (8) stated that acceptance of the
tender would
rest with the Airport Director who does not bind
himself to
accept any tender and reserves to himself the
right to
reject all or any of the tenders received without
assigning
any reasons therefor.
out of the six tenders received only the
tender of the
4th respondents was complete and offered the
highest amount
as licence fee. All the other tenders were
rejected because
they were incomplete.
Since the fourth respondents did
not satisfy the
description of "registered second class hoteliers
having at
least S years' experience" prescribed in para
graph (1) of
the tender notice, the 1st respondent called upon
the fourth
respondents to produce documentary evidence
whether they
were registered second class hotliers having
at least 5
years' experience. The fourth respondents stated
once again
that they had considerable experience of
catering for
various reputed commercial houses, clubs,
messes and banks
and that they had Eating Houses Catering
Establishment
(Canteen) Licence. Satisfied with the
information given by
the fourth respondents, the first respondent
accepted their
tender on the terms and conditions set out in its
letter.
The appellant filed a writ petition before
the High
Court challenging the decision of the first
respondent in
accepting the tender of the fourth respondents.
But it was
rejected.
In appeal to this Court it was contended
on behalf of
the appellants that (1) the first respondent
which is a
public authority was bound to give effect
to the most
important condition of eligibility and
acceptance of the
tender by the first respondent was in
violation of the
standard or norm of eligibility set up by
the first
respondent and (2) had the appellant
known that non-
fulfilment of the condition of eligibility would
be no bar
for considering a tender he too would have
competed for
obtaining the contract.
1015
The fourth respondents, on the other
hand, contended
that the requirement A that the tenderer
must be a
registered second grade hotlier was meaningless
because the
grading is given by the Bombay City Municipal
Corporation
only to hotels or restaurants and not to
persons running
them and, therefore there could be no second
grade hotlier;
(2) the notice setting out the conditions
of eligibility
having had no stautory force, even if there was a
departure
from the standard or norm of eligibility,
it was not
justiceable and the first respondent was
competent to give
the conract to anyone it thought fit; and (3) the
1 Airport
Authority reserved to itself the right to reject
all or any
of the tenders without assigning any reasons and,
therefore,
it was competent to it to reject all the
tenders or
negotiate with any person it considered fit to
enter into a
contract.
^
HELD: The action of the first respondent in
accepting
the tender of the fourth respondents, who did
not satisfy
the standard or norm, was clearly
discriminatory since it
excluded other persons similarly situate from
tendering for
the contract and it was arbitrary and
without reason.
Acceptance of the tender was invalid as being
violative of
the equality clause of the Constitution
as also of
administrative law inhibiting arbitrary action.
[1056C]
(a) What paragraph ( 1 ) of the
notice required was
that only a person running a registered second
class hotel
or restaurant and having at least 5 years'
experience as
such should be eligible to submit the tender. The
test of 1)
eligibility laid down in this paragraph was an
objective
test and not a subjective one. If a person
submitting the
tender did not have atleast five years'
experience of
running a second class hotel, he was eligible to
submit the
tender and it would not avail him to say that
though he did
not satisfy this condition he was otherwise
capable of
running a second class restaurant and
therefore should be
considered. This was in fact how the
first respondent
understood this condition of eligibility.
The first
respondent did not regard this requirement as
meaningless or
unnecessary and wanted to be satisfied that
the fourth
respondents had fulfilled this requirement.
The fourth
respondents were neither running a second grade
hotel or
restaurant nor did they have five years'
experience of
running such a hotel or restaurant. Therefore
the fourth
respondents did not satisfy the condition
of eligibility
laid down in paragraph(l) of the noice. [1028 B-H]
(b) It is not possible to justify the
action of the
first respondent on the ground that it could
have achieved
the same result by rejecting all the tenders
and entering
into direct negotiations with the fourth
respondents
Although there was no statutory or
administrative rule
requiring the first respondent to give a
contract only by
inviting tenders and that on the terms of
paragraph 8 of the
tender notice, it was not bound to accept any
tender, the
first respondent did not reject the tenders
outright and
enter into direct negotiation with the
fourth respondents
for awarding the contract. The process of .
awarding a
contract by inviting tenders was not terminated or
abandoned
by the first respondent by rejecting all the
tenders but in
furtherance of the process the tender of
the fourth
respondents was accepted by the first
respondent. Nor was
the contract given to the fourth respondents as a
result of
direct negotiations. [1029 D-G]
2(a) Today with tremendous expansion of
welfare and
social service functions, increasing control of
material and
economic resources and large scale assumption of
industrial
and commercial activities by the State, the power
of
1016
the executive Government to affect the lives of
the people
is steadily growing. The attainment of
socio-economic
justice being a conscious end of State policy,
there is a
vast and inevitable increase in the frequency
with which
ordinary citizens come into relationship of direct
encounter
with State power-holders. This renders it
necessary to
structure and restrict the power of the executive
Government
so as to prevent its arbitrary application or
exercise.
Whatever be the concept of the rule of law,
there is
substantial agreement in juristic thought that
the great
purpose of the rule of law notion is the
protection of the
individual against arbitrary exercise of power,
wherever it
is found. It is unthinkable that in a democracy
governed by
the rule of law the executive Government or
any of its
officers should possess arbitrary power over
the interests
of the individual. Every action of the
executive Government
must be informed with reason and
should be free from
arbitrariness. That is the very essence of the
rule of law
and its bare minimal requirement. And to the
application of
this principle it makes no difference whether the
exercise
of the power involves affectation of some right or
denial of
some privilege. [1031 F-H]
(b) To.day the Government, in a welfare
State? is the
regulator and dispenser of special services and
provider of
a large number of benefits. The valuables
dispensed by
Government take many forms, but they
all share one
characteristic. They are steadily taking
the place of
traditional forms of wealth. These valuables
which derive
from relationships to Government are of many
kinds: leases,
licences, contracts and so forth. With the
inereasing
magnitude and range of governmental functions
as we move
closer to a wefare State, more and more of
our wealth
consists of these new forms. Some of these
forms of wealth
may be in the nature of legal rights but the
large majority
of them are in the nature of privileges.
But on that
account, it cannot be said that they do not enjoy
any legal
protection nor can they be regarded as gratuity
furnished by
the State so that the State may withhold, grant or
revoke it
at its pleasure. [1032 E-H]
(c) The law has not been slow to
recognize the
importance of this new kind of wealth and
the need to
protect individual interest in it and with that
end in view,
it has developed new forms of protection. Some
interests in
Government largess, formerly regarded as
privileges, have
been recognized as rights while others have been
given legal
protection not only by forging procedural
safeguards but
also by confining/structuring and checking
Government
discretion in the matter of grant of such
largess. The
discretion of the Government has been held
to be not
unlimited in that the Government cannot give
or withhold
largess in its arbitrary discretion or at its
sweet will.
[1033 C-D]
Viterolli v. Saton 359 U.S. 535: 3 Law
Ed. (Second
Series) 1012, Erusian Equipment and Chemicals
Ltd. v. State
of West Bengal, [1975] 2 SCR. 674 referred to.
(d) Therefore, where the Government is
dealing with the
public, whether by way of giving jobs or
entering into
contracts or issuing quotas or licences or
granting other
forms of largess. the Government cannot act
arbitrarily at
its sweet will and, like a private individual,
deal with any
person it pleases, but its action must be in
conformity with
standard or norm which is not arbitrary,
irrational or
irrelevant. The power or discretion of the
Government in the
matter of grant of largess including
award of jobs,
contracts etc., must be con fined and
structured by
rational, relevant and non-discriminatory
standard or norm
and if the Government departs from such
standard or norm in
any particular case or cases, the action of the
Government
would be liable to be struck
1017
down. unless it can be shown by the
Government that the
departure was not arbitrary, but was based on
some valid
principle which in itself was non-
irrational, unreasonable
or discriminatory. [1034 F-H]
(e) The Government which represents the
executive
authority of the State may act through the
instrumentality
or agency of natural persons or it
may employ the
instrumentality or agency of JURIDICAL persons to
carry out
its functions. With the advent of the welfare
state the
civil service, which traditionally carried out
functions of
Government through natural persons, was found
inadequate to
handle the new tasks of specialised and highly
technical
character. To fill the gap it became
necessary to forge a
new instrumentality or administrative device for
handling
these new problems and that is done by public
corporations
which has become the third arm of the
Government. They are
regarded as agencies of the Government. In
pursuance of the
industrial policy resolution of the Government
of India
corporations were created by the Government for
setting up
and management of public enterprises and carrying
out public
function. The corporations so created,
acting as
instrumentality or agency of Government, would
obviously be
subject to the same limitations in
the field of
constitutional and administrative law as
Government itself
though in the eye of law they would be
distinct and
independent legal entities. It Government.
acting,, through
its officers is subject to certain constitutional
and public
law. limitations, it must follow a fortiori that
Government,
though the instrumentality or agency of
corporations, should
equally be subject to the same limitations. But
the question
is how to determine whether a corporation
is acting is
instrumentality or agency of Government. [1035A-C,
F-H]
3(a ) The factors for determining whether a
corporation
has become an instrumentality or agency of
the Government
are: does the State give (my financial assistance
and if so
that is the magnitude of such assistance ?
Is there any
control of the management and policies of the
corporation by
the State, and what is the nature and extent
of such
control? Does the corporation enjoy any State
conferred or
State protected monopoly status and whether
the functions
carried out by the corporation are pubic
functions closely
related to governmental functions? It is not
possible to
particularise all the relevant factors but no
single factor
will yield a safisfactory answer, to the
question and the
court will have to consider the cumulative.
effect of these
various factors and establish it by its
decision on the
basis of a particularised enquiry into
facts and
circumstances of each case. [1041 B-E]
(b) Sukhudev v. Bhagatram [1975] 3
S.C.R. 619 at 658
explained, Kerr v. Eneck Pratt Free Library,
149 F. 2d 212,
Jackson v. Metropolitan Edison Co. 419 U.S. 345,
42 L.ed. 2d
477, Evans v. Newton 382 U.S. 296; 15 L.ed. 2d
373, Pfizer
v. Ministry of Health [1964] 1 Ch. 614, New
York v. United
State 326 U.S. 572, Cf. Helvering v. Gerhardt
304 U.S. 405
426, 427 referred to.
(c) Where a corporation is an instrumentality
or agency
of Government it would be subject to some
constitutional or
public law limitations ns Government. The rule
inhibiting
arbitrary action by Government must apply equally
where such
corporation is dealing with the public and it
cannot act
arbitrarily and c into relationship with any
person it likes
at its sweet will. Its action must be in
conformity with
some principles which meets the test of
reason and
relevance. [1041 H]
9-409 SC1/79
1018
Rajasthan Electricity Board v. Mohan Lal
[1967] 3
S.C.R. 377, and Sukhdev v. Bhagatram [19751 3
S.C.R. 619 at
658 followed.
Praga Tools Corporation v. C.A. Imanuel
(1969] 3 S.C.R.
773, Heavy Engineering Mazdoor Union v.
State of Bihar
[1969] 3 S.C.R. 995, S. L. Aggarwal v. General
Manager,
Hindustan Steel Limited [1970] 3 SCR 363,
Sarbhajit Tewari v
Union of lndia & Ors. [1975] 1 SCC 485; held
inapplicable.
(d) It is well established that Art. 14
requires That
action must not be arbitrary and must be based
on some
rational and relevant principle which is non-
discriminatory.
It must not be guided by extraneous
or irrelevant
considerations. The State cannot act arbitrarily
in enter
into relationship, contractual or otherwise,
with a third
party. Its action must conform to some
standard or norm
which is rational and non-discriminatory. [1042 C]
E. P. Rayappa v. State of Tamil Nadu [1974]
2 SCR 348,
Maneka Gandhi v. Union of India [1978] 2
S.C.R. 621,
Rashbihari Panda v. State of Orissa [1969] 3
S.C.R. 374, C.
K. Achuthan v. State of Kerala [1959] S.C.R.
78, referred
to,
Trilochan Mishra v. State of orissa &
ors. [1971 3
S.C.R. 153, State of Orissa v. Harinarayan
Jaiswal & ors.
[1972] 2 S.C.R. 36, Rajasthan Electricity Board v.
Mohan Lal
[1967] 3 S.C.R. 377, Praga Tools Corporation
Dv. c. A.
Imanuel [1969] 3 S.C.R. 773, Heavy Engineering
Mazdoor Union
v. State of Bihar [1969] 3 SCR, 995, S. L.
Aggarwal v.
General Manager Hindustan Steel Limited
[1970] 3 SCR. 363,
Sarbhajit Tewari v. Union of India & ors. [1975]
1 SCC 485,
held in applicable.
4(a) The International Airport Authority
Act, 1971
empowers the Central Government to constitute an
authority
called the International Air port Authority.
The salient
features of the Act are: the Anthority, which is
a body cor
porate having perpetual succession and a
common seal,
consists of a Chairman and certain other
Members who are
appointed by the Central Government. The Central
Government
has power to terminate the appointment or to
remove a member
from the Board of the Authority. Although the
Authority has
no share capital of its own, capital
needed by it for
carrying out its functions is provided wholly by
the Central
Government. All non-recurring, expenditure
Incurred by the
Central Government for or in connection with the
purposes of
the airports upto the appointed date and
declared to be
capital expenditure by the Central Government
shall be
treated as capital provided by the Central
Government to the
first respondent and all sums of money due to
the Central
Government in relation to the airports
immediately before
the appointed date shall] be deemed to be due to
the first
respondent. The functions, which until the
appointed date
were being carried out by the General
Government, were
Transferred to the Airport Athority by virtue of
s. 16. The
first respondent, according to s. 20, should pay
the balance
of its annual net profits to the Central
Government after
making provision for reserve funds, bad and
doubtful debts,
depreciation in assets and so on. The
first respondent,
under s. 21, has to submit for the approval of
the Central
Government a statement of the programme of its
activities
during the forthcoming financial year. Its
accounts are
audited by the Comptroller and Auditor General
and the
accounts Shall be forwarded to the Central
Government. The
first respondent is required to submit an
account of its
activities during a financial year and this
report is laid
before the Houses of Parliament by the Central
Government.
The Central Government has power to divest
the first
respodent temporarily from
1019
the management of any airport and direct ut to
entrust such
management to any other person. Power is
conferred under s.
34 on the Central Government to supersede
the first
respodent under certain specified
circumtances. Section 35
gives power to the Central Government to give
directions in
writing to the Airport Authority on questions of
policy and
the Airport Authority is bound by such
directions. Section
37 empowers the Airport Authority to make
regulations.
Section 39 provides that contravention of any
regulation
made by the Airport Authority is punishable.
[1052B-1054C]
(b) A conspectus of the provisions of the
Act clearly
shows that every test l down by this Court
in deciding
whether a statuority authority comes within
the purview of
Art. 12 of the constitution is satisfied in the
case of the
first respondent. they leave no room for doubt
that it is an
instrumentality or agency of the Central
Government and
falls within the definition of State.
Therefore, having
regard both to the constitutional mandate of Art.
14 and the
judicially evolved rule of administrative law,
the first
respendent was not entitled to act arbitrarily in
accepting
the tender of the fourth respondents but was
bound to
conform to the standard or norm did down in
paragraph I of
tho notice inviting tenders. The standard or norm
laid down
by the notice was reasonable and non-
discriminatory and once
it is found that such a standard or norm is laid
down, the
first respondent was not entitled to depart
from it and
award the contract to the fourth respondents
who did not
satisfy the condition of eligibility prescribed
by standard
or norm. If none of the tenderer satisfied the
condition the
first respondent could have rejected the tender
and invited
fresh tenders on the basis of less stringent
standard or
norm, but it could not depart from the
prescribed standard
or norm. [1055 E-A]
(c) In the instant case the appellant had
no real
interest in the result of the litigation.
There can be no
doubt that the litigation was commenced by the
appellant not
with a view to protection his own interest, but
had been put
up by others for depriving the fourth
respondents of the
benefit of the contract secured by them. The
Writ Petition
was filed more than five months after the
acceptance of the
tender and the position would have been
different had tho
appellant filed it immediately after the
acceptance of the
tender. The Fourth respondents have
incurred a large
expenditure in making necessary arrangement under
the bona
fide belief that their tender had been legally
and validly
accepted. It would be most inequitous to
set aside the
contract at the instance of the appellant

JUDGMENT:

CIVIL APPELLATE JURISIDICTION: Civil Appeal No. 895 of 1978.

Appeal by Special Leave from the Judgment and order dated 23-1-1978 of
the High Court at Bombay in Appeal No. 234/77 arising out of Misc.
Petition No. 1582/77.

Ashok H. Desai, Y. S. Chitale, Jai Chinai, P. G. Gokhale and . R Agarwal

for the Appellant. II G. B. Pai, o. c. Mathur and D. N. Mishra for
Respondent No. 1.

F.S. Nariman, R. H. Dhebar, S. K. Dholakia, H H. Yagnik and . V. Desai

for Respondent No. 4.

The Judgment of the Court was delivered by BHAGWATI, J.-This appeal

by special leave raises interesting questions of law in the area of public
law. What are the constitutional obligations on the State when it takes
action in exercise of its statutory or executive power? Is the State entitled
to deal with its property in and manner it likes or award a contract to any
person it chooses without any constitutional limitations upon it? What are
the parameters of its statutory or executive power in the matter of awarding
a contract or dealing with its propery ? The questions fell in the sphere of
both administrative law and constitutional law and they assume special
significance in a modern welfare State which is com mitted to egalitarian
values and dedicated to the rule or law. But these questions cannot be
decided in the abstract. They can be determined only against the back-
ground of facts and hence we shall proceed to State the facts giving rise to
the appeal.

On or about 3rd January, 1977 a notice inviting tenders for putting up and
running a second class restaurant and two Snack bars at the International
Airport Bombay was issued by the 1st respondent Which is a corporate
body constituted under the International Airport Authority Act, 43 of 1971.
The notice stated in the clearest terms in paragraph (1) that "Sealed tenders
in the prescribed form are here by invited from Registered IInd Class
Hoteliers having at least 5 years' experience for putting up and running a
IInd Class Restaurant and two Snack bars at this Airport for a period of 3
years". The latest point of time upto which the tenders could be submitted
to the 1st respodent was stipulated in Paragraph 7 of the notice to be 12
p.m. On 25th January, 1977 and it was provided that the tenders would be
opened on the same date at 12.30 hours. Paragraph (8) of the notice made
it clear that "the acceptance of the tender will rest with the Airport Director
who does not bind himself to accept any tender and reserves to himself the
right to reject all or ally of the tenders received without assigning any
reasons therefore " There were six tenders received by the 1st respondent
in response to the notice and one of them was from the 4th respondents of
offering a licence fee of Rs. 6666.66 per month, and the others were from
Cafe Mahim, Central Catering Service, one A. S. Irani, Cafe Seaside and
Care Excelsior offering progressively decreasing licence fee very much
lower than that offered by the 4th respondents. The tenders were opened in
the office of the Airport Director at 12.30 p.m. On 25th January, 1977 and
at that time the 4th respondents were represented by their sole proprietor
Kumaria. A. S. Irani was present on behalf of himself, Cafe Mahim, Cafe
Seaside and Cafe Excelsior and there was one representative of Central
Catering Service. The tenders of Cafe Mahim, Central Catering Service,
Cafe Seaside and Cafe Excelsior were not complete since they were not
accompanied by the respective income tax certificates, affidavits of
immovable property and solvency certificates, as required by cl. (9) of the
terms and conditions of the tender form. The tenders of A. S. Irani was also
not complete as it was not accompanied by an affidavit of immovable
property held by him and solvency certificates. The only tender which was
complete and fully complied with the terms and conditions of the tender
form was that of the 4th respondents and the offer contained in that tender
was also the highest amongst all the tenders. Now it is necessary to point
out at this stage that while submitting their tender the 4th respondents had
pointed out in their letter dated 24th January, 1977 addressed to the Airport
Director that they had 10 years' experience in catering to reputed
commercial houses, training centres, banks and factories and that they
were also doing considerable outdoor catering work for various
institutions. This letter showed that the 4th respondents had experience
only of running canteens and not restaurants and it appeared that they did
not satisfy the description of "registered IInd Class Hotelier having at least
5 years' experience" as set out in paragraph (1) of the notice inviting
tenders. The Airport officer, therefore, by his letter dated 15th February,
1977 requested the 4th respondents to inform by return of post whether
they were a "registered IInd Class Hotelier having at least 5 years
experience" and to produce documentary evidence in this respect within 7
days. The 4th respondents pointed out to the Airport officer by their letter
dated 22nd February, 1977 that they had, in addition to what was set out in
their earlier letter dated 24th January, 1977, experience of running
canteens for Phillips India Ltd. and Indian oil Corporation and moreover,
they held Eating House Licence granted by the Bombay Municipal
Corporation since 1973 and had thus experience of 10 years in the catering
line. It appears that before this letter of the 4th respondents could reach
Airport officer, another letter dated 22nd February, 1977 was addressed by
the Airport officer once again requesting the 4th respondents to produce
documentary evidence to show if they were ''a registered Ilnd Class
Hotelier having at least 5 years experience". The 4th respondents
thereupon addressed another letter dated 26th February, 1977 to the
Director pointing out that they had considerable experience of catering for
various reputed commercial houses, clubs, messes and banks and They
also held an Eating House Catering Establishment (Canteen) Licence as
also a licence issued under the Prevention of Food Adulteration Act. The
4th respondents stated that their sole proprietor Kumaria had started his
career in catering line in the year 1962 at Hotel Janpath, Delhi and
gradually risen to his present position and that he had accordingly
"experience equivalent to that of a IInd Class or even 1st Class hotelier."
This position was reiterated by the 4th respondents in a further letter dated
3rd March, 1977 addressed to the Director. This information given by the
4th respondents appeared to satisfy the 1st respondent and by a letter dated
19th April, 1977 the 1st respondent accepted the tender of the 4th
respondents on the terms and conditions set out in that letter. The 4th
respondents accepted these terms and conditions by their letter dated 23rd
April, 1977 and deposited with the 1st respondent by was of security a sum
of Rs. 39,999.96 in the form of fixed Deposit Receipts in favour of the Ist
respondent and paid to the 1st respondent a sum of Rs. 6666.66
representing licence fee for one month and other amounts representing
water, electricity and conservancy charges. The 4th respondents thereafter
executed and handed over to the Ist respondent an agreement in the form
attached to the tender on 1st May, 1977. The 4th respondents also got
prepared furniture, counters and showcases as also uniforms for the staff,
purchased inter alia deep freezers, water coolers, electrical appliances,
icecream cabinets, espresso coffee machines, crockery, cutlery and other
articles and things and also engaged the necessary staff for the purpose of
running the restaurant and the two Snack bars But the Ist respondent could
not hand over possession of the requisite sites to the 4th respondents, since
A. S. Irani was running his restaurant and snack bars on these sites under a
previous contract with the 1 st respondent and though that contract had
come to an end, A. S. Irani did not deliver possession of these sites to the
Ist respondent. The 4th respondents repeatedly requested the 1st
respondent and the Airport Director who is the 2nd respondent in the
appeal, to hand over possession of the sites and pointed out to the that the
4th repondents were incurring losses by reason of delay in delivery of
possession, but on account of the intransigence of A. S. Irani the Ist
respondent could not arrange to hand over possession of the sites to the 4th
respondents.

Meanwhile one K. S, Irani who owned Cafe Excelsior filed Suit No. 6544
of 1977 in the City Civil Court, Bombay against the respondents
challenging the decision of the Ist respondent to accept the tender of the
4th respondents and took out a notice of motion for restraining the 1 st
respondent from taking any further steps pursuant to the acceptance of the
tender. K. S. Irani obtained an ad- interim injunction against the
respondents but after hearing the respondents, the City Civil Court vacated
the ad-interim injunction and dismissed the notice of motion by an order
dated 10th october, 1977. An appeal was preferred by K. S. Irani against
this order, but the appeal was dismissed by the High Court on 19th october,
1977. Immediately thereafter, on the same day, the Ist respondent handed
over possession of two, sites to the 4th respondents and the 4th
respondents proceeded to set up snack bars on the two sites and started
business of catering at the two snack bars. These two sites handed over to
the 4th respondents were different from the sites occupied by A.S. Irani,
because A. S. Irani refused to vacate the sites in his occupation. So far as
the site for the restaurant was concerned, the Ist respondent could not hand
over the possession of it to the 4th respondents presumably because there
was no other appropriate site available other than the one occupied by A.
S. Irani. Since A. S. lrani refused to hand over possession of the sites
occupied by him to the Ist respondent, even though his contract had come
to an end, and continued to carry on the business of running the restaurant
and the snack bars on these sites, the Ist respondent was constrained to file
suit No. 8032 of 1977 against A. S. Irani in the City Civil Court at Bombay
and in that suit, an injunction was obtained by the 1st respondent
restraining A. S. Irani from running or conducting the restaurant and the
snack bars or from entering the premises save and except for winding up
the restaurant and the snack bars. A. S. Irani preferred an appeal against
the order granting the injunction, but the appeal was rejected and
ultimately a petition for special leave to appeal to this Court was also
turned down on 31st July, 1978.

This was, however, not to be the end of the travails of the 4th respondents.
for, as soon as the appeal preferred by K. S. Irani against the order
dismissing his notice of motion was rejected by the High Court on 19th
October, 1977, A. S. Irani filed another suit being suit No. 8161 of 1977 in
the City Civil Court, Bombay on 24th October,1977 seeking mandatory
injunction for removal of the two snack bars put up by the 4th respondents.
This was one more attempt by A. S. Irani to prevent the 4th respondents
from obtaining the benefit of the contract awarded to them by the Ist
respondent. He, however, did not succeed in obtaining ad- interim
injunction and we are told that the notice of nation taken out by him is still
pending in the City Civil Court.
It will thus be seen that A. S. Irani failed in his attempts to prevent the 4th
respondents from obtaining the contract and enjoying its benefit. The 4th
respondents put up two snack bars on the sites provided by the 1st
respondent and started running the two snack bars from 1 9th october?
1977. The restaurant however, could not be put up on account of the
inability of the Ist respondent to provide appropriate site to the 4th
respondents and, therefore, the licence fee for the two snack bars had to be
settled and it was fixed at Rs. 4.50O/- per month by mutual agreement
between the parties. But it seems that the 4th respondents were not
destined to be left in peace to run the two snack bars and soon after the
dismissal of the appeal of A. S. Irani on l9th october, 1977 and the failure
of A. S. Irani to obtain an ad interim mandatory injunction in the suit filed
by him against the 1st and the 4th respondents, the appellant filed writ
petition No. 1582 of 1977 in the High Court of Bombay challenging the
decision of the 1st respondent to accept the tender of the 4th respondents.
The writ petition was moved before a Single Judge of the High Court on
8th November, 1977 after giving prior notice to the respondent and after
hearing the parties, the learned Single Judge summarily rejected the writ
petition. The appellant preferred an appeal to the Division Bench of the
High Court against the order rejecting the writ petition and on notice being
issued by the Division Bench, the 1st and the 4th respondents filed their
respective affidavits in reply showing cause against the admission of the
appeal. The Division Bench after considering the affidavits and hearing the
parties rejected the appeal in limine on 21st February, 1978. The appellant
thereupon filed a petition for special leave to appeal to this Court and since
it was felt that the questions raised in the appeal were of seminal
importance, this Court granted special leave and decided to hear the appeal
at an early date after giving a further opportunity to the parties to file their
respective affidavits. That is how the appeal has now come before us for
final hearing with full and adequate material placed before us on behalf of
both the parties.

The main contention urged on behalf of the appellant was that in paragraph
(1) of the notice inviting tenders the 1st respondent had stipulated a
condition of eligibility by providing that a person submitting a tender must
be a "registered IInd class Hotelier having at least 5 years experience."
This was a condition of eligibility to be satisfied by every person
submitting a tender and if in case of any person, this condition was not
satisfied, his tender was ineligible for being considered. The 1st
respondent, being a State within the meaning of Art. 12 of the Constitution
or in any event a public authority, was bound to give effect to the condition
of eligibility set up by it and was not entitled to depart from it at its own
sweet will without rational justification. The 4th respondents had
experience of catering only in canteens and did not have 5 years'
experience of running a IInd class hotel or restaurant and hence they did
not satisfy the condition of eligibility and yet the 1st respondent accepted
the tender submitted by them. This was clearly in violation of the standard
or norm of eligibility set up by the 1 respondent and the action of the 1st
respondent in accepting the tender of the 4th respondents was clearly
invalid. Such a departure from the standard or norm of eligibility had the
effect of denying equal opportunity to the appellant and others of
submitting their tenders and being considered for entering into contract for
putting up and running the restaurant and two snack bars. The appellant too
was not a registered 2nd class hotelier with 5 years' experience and was in
the same position as the 4th respondents vis-a-vis this condition of
eligibility and he also could have submitted his tender and entered the field
of consideration for award of the contract, but he did not do so because of
this condition of eligibility which he admittedly did not satisfy. The action
of the 1st respondent in accepting the tender of the 4th respondents had,
therefore the effect of denying him equality of opportunity in the matter of
consideration for award of the contract and hence it was unconstitutional as
being in violation of the equality clause. This contention of the appellant
was sought to be met by a threefold argument on behalf of the 1 st and the
4th Respondents. The first head of the argument was that grading is given
by the E Bombay City Municipal Corporation only to hotels or restaurants
and not persons running them and hence there can be a 2nd grade hotel or
restaurant but not a 2nd grade hotelier and the requirement in paragraph (1)
of the notice that a tenderer must be a registered 2nd grade hotelier was
therefore a meaningless requirement and it could not be regarded as laying
clown any condition of eligibility. It was also urged that in any event what
paragraph (] ) of the notice required was not that a person tendering must
have 5 years' experience of running a 2nd grade hotel, but he should have
sufficient experience to be able to run a 2nd grade hotel and the 4th
respondents were fully qualified in this respect since they had over 10
years' experience in catering to canteens of well known companies, clubs
and banks. It was further contended in the alternative that paragraph (8) of
the notice clearly provided that the acceptance of the tender- would rest
with the Airport Director who did not bind himself to accept any tender
and reserved to himself the right to reject all or any of the tenders without
assigning any reasons therefor and it was, therefore, competent to the 1st
respondent to reject all the tenders and to nogotiate with any person it
considered fit to enter into a contract and this is in effect and substance
what the 1st respondent did when he accepted the tender of the 4th
respondents. The second head of argument was that paragraph (1) of the
notice setting out the condition of eligibility had no statutory force nor was
it issued under any administrative rules and, therefore, even if there was
any departure from the standard or norm of eligibility set out in that
paragraph, it was not justiciable and did not furnish any cause of action to
the appellant. It was competent to the 1st respondent to give the contract to
any one it thought fit and it was not bound by the standard or norm of
eligibility set out in paragraph (l) of the notice. It was submitted that in any
event the appellant had no right to complain that the 1st respondent had
given the contract to the 4th respondents in breach of the condition of
eligibility laid down in paragraph (1) of the notice. And lastly, under the
third head of argument, it was submitted on behalf. Of the 1st and the 4th
respondents that in any view of the matter, the writ petition of the appellant
was liable to be rejected in the exercise of its discretion by the Court, since
the appellant had no real interest but was merely a nominee of A. S. Irani
who had been putting up one person after another to start litigation with a
view to preventing the award of the contract to the 4th respondents. The
appellant was also guilty of laches and delay in filing the writ petition and
the High Court was justified in rejecting the writ petition in limine
particularly in view of the fact that during the period between the date of
acceptance of the tender and the date of filing of the writ petition, the 4th
respondents had spent an aggregate sum of about Rs. 1,25,000/- in making
arrangements for putting up the restaurant and two snack bars. These were
the rival contentions urged on behalf of the parties and we shall now
proceed to discuss them in the order in which we have set them out.
Now it is clear from paragraph (1) of the notice that tenders were invited
only from "registered 2nd Class hoteliers having at least 5 years'
experience". It is only if a person was a registered 2nd Class hotelier
having at least 5 years' experience that he could, on the terms of paragraph
(1) of the notice, submit a tender. Paragraph (1) of the notice prescribed a
condition of eligibility which had to be satisfied by every person
submitting a tender and if, in a given case, a person submitting a tender did
not satisfy this condition, his tender was not eligible to be considered. Now
it is true that the terms and conditions of the tender form did not prescribe
that the tenderer must be a registered IInd Class hotelier having at least 5
years' experience nor was any such stipulation to be found in the form c f
the agreement annexed to the tender but the notice inviting tenders
published in the newspapers clearly stipulated that tenders may be
submitted only by registered llnd Class hoteliers having at least 5 years'
experience and this tender notice was also included amongst the
documents handed over to prospective tenderers when they applied for
tender forms. Now the question is, what is the meaning of the expression
"registered Ilnd Class hotelier", what category of persons fall within the
meaning of this description ? This is a necessary enquiry in order to
determine whether the 4th respondents were eligible to submit a tender. It
is clear from the affidavits and indeed there was no dispute about it that
different grades are given by the Bombay City Municipal Corporation to
hotels and restaurants and, therefore, there may be a registered Ilnd Class
Hotel but no such grades are given to persons running hotels and
restaurants and hence it would be inappropriate to speak of a person as a
registered llnd Class hoteIier. But on that account would it be right to
reject the expression "registered IInd Class hotelier" as meaningless and
deprive paragraph (1) of the notice of any meaning and effect. We do not
think such a view would be justified by any canon of construction. It is a
well settled rule of interpretation applicable alike to documents as to
statutes that, save for compelling necessity, the court should not be prompt
to ascribe superfluity to the language of a document "and should be rather
at the outset inclined to suppose every word intended to have some effect
or be of some use". To reject words as insensible should be the last resort
of judicial interpretation, for it is an elementary rule based on common
sense that no author of a formal document intended to be acted upon by the
others should be presumed to use words without a meaning. The court
must, as far as possible, avoid a construction which would render the
words used by the author of the document meaningless and futile or reduce
silence any part of the document and make it altogether inapplicaple. Now,
here the expression used in paragraph (1) of the notice was "registered IInd
Class hotelier" and there can be no doubt that by using, this expression the
Ist respondent intended to delineate a certain category of persons who
alone should be eligible to submit a tender. The Ist respondent was not
acting aimlessly or insensibly in insisting upon this requirement nor was it
indulging, in a meaningless and futile exercise. It had a definite purpose in
view when it laid down this condition of eligibility in paragraph (1) of the
notice. It is true that the phraseology used by the Ist respondent to express
its intention was rather inapt but it is obvious from the context that the
expression "registered llnd Class hotelier" was loosely used to denote a
person conducting or running a IInd Class hotel or restaurant. It may be
ungrammatical but it docs not offend common-sense to describe a person
running a registered IInd grade hotel as a registered IInd grade hotelier.
This meaning is quite reasonable and does not do any violence to the
language and makes sense of the provision contained in paragraph (1) of
the notice. We must, in the circumstances, hold that, on a proper
construction, what paragraph (1) of the notice required was that only a
person running a registered llnd Class hotel or restaurant and having at
least 5 years' experience as such should be eligible to submit a tender. This
was a condition of eligibility and it is difficult to see how this condition
could be said to be satisfied by any person who did not have five years'
experience of running a IInd Class hotel or restaurant. The test of
eligibility laid down was an objective test and not a subjective one. What
the condition of eligibility required has that the person submitting a tender
must have 5 years' experience of running a II Class hotel, as this would
ensure by an objective test that he was capable of running a Il Class
restaurant and it should not be left to the Ist respondent to decide in its
subjective discretion that the person tendering was capable of running such
a restaurant. If therefore, a person submitting a tender did not have at least
5 years' experience of running a II Class hotel, he was not eligible to
submit the tender and it would not avail him to say that though he did not
satisfy this condition, he was otherwise capable of running a IInd Class
restaurant and should, therefore, be considered. This was in fact how the 1
st respondent itself understood this condition of eligibility. When the 4th
respondents submitted their tender along with Their Letter dated 24th
January, 1977, it appeared from the documents submitted by the 4th
respondents that they did not have 5 years' experience of running a II Class
restaurant. The 1st respondent by its letter dated l5th February 1977
required the 4th respondents to produce documentary evidence to show
that they were "registered II Class hotelier having at least 5 years'
experience." The 1st respondent did not regard this requirement of
eligibility as meaningless or unnecessary and wanted to be satisfied that
the 4th respondent did fulfil this requirement. Now, unfortunately for the
4th respondents, the had over lO years' experience of running can teens but
at the date when they submitted their tender, they cannot running a II grade
hotel or restaurant nor did they have 5 years' experience of running such a
hotel or restaurant. Even if the experience of the 4th respondents in the
catering line were taken into account from 1962 onwards, it would not
cover a total period of more than 4 years 2 months so far as catering
experience in llnd Grade hotels and restaurants is concerned. The 4th
respondents thus did not satisfy the condition of eligibility laid down in
paragraph (1) of the notice and in fact this was implidely conceded by the
4th respondents in their letter dated 26th February, 1977 where A they
stated that they had "experience equivalent to that of a 2nd class or even
1st class hotelier." The 4th respondents were, accordingly, not eligible for
submitting a tender and the action of the 1st respondent in accepting their
tender was in contravention of paragraph (1) of the notice.

It was suggested on behalf of the 1st and the 4th respondents that there was
nothing wrong in the 1st respondent giving the contract to the 4th
respondents since it was competent to the 1st respondent to reject all the
tenders received by it and to negotiate directly with The 4th respondents
for giving them the contract and it made no difference that instead of
following this procedure, which perhaps might have resulted in the 4th
respondents offering a smaller licence fee and the 1 st respondent suffering
a loss in the process, true 1 st respondent accepted The tender of the 4th
respondents. We do not think there is any force in this argument. It is true
that there was no statutory or administrative rule requiring the 1st
respondent to give a contract only by inviting tenders and hence the 1st
respondent was entitled to reject all the tenders and, subject to the
constitutional norm laid down in Art 14, negotiate directly for entering into
a contract. Paragraph (8) of the notice also made it clear that the 1st
respondent was not bound to accept any tender and could reject all the
tenders received by it. But here the 1st respondent did not reject the tenders
outright and enter into direct negotiations with the 4th respondents for
awarding the contract. The process of awarding a contract by inviting
tenders was not terminated or abandoned by the 1st respondent by rejecting
all the tenders but in furtherance of the process, the tender of the 4th
respondents was accepted by the 1st respondent. The contract was not
given to the 4th respondents as a result of direct negotiations. Tenders were
invited and out of the tenders received, the one submitted by the 4th
respondents was accepted and the contract was given to them. It is,
therefore not possible to justify the action of the 1st respondent on the
ground that the 1st respondent could have achieved the same result by
rejecting all the tenders and entering into direct negotiations with the 4th
respondents.

That takes us to the next question whether the acceptance of the tender of
the 4th respondents was invalid and liable to be set aside at the instance of
the appellant. It was contended on behalf GI the 1st and the 4th
respondents that the appellant had no locus to maintain the writ petition
since no tender was submitted by him and he was a mere stranger. The
argument was that if the appellant did not enter the field of competition by
submitting a tender, what did it matter to him whose tender was accepted;
what grievance could he have if the tender of the 4th respondents was
wrongly accepted. A person whose tender was rejected might very well
complain that the tender of someone else was wrongly accepted, but it was
submitted, how could a person who never tendered and who was at no time
in the field, put forward such a complaint ? This argument, in our opinion,
is mis-conceived and cannot be sustained for a moment. The grievance of
the appellant, it may be noted, was not that his tender was rejected as a
result of improper acceptance of the tender of the 4th respondents, but that
he was differentially treated and denied equality of opportunity with the
4th respondents in submitting a tender. His complaint was that if it were
known that non-fulfilment of the condition of eligibility would be no bar to
consideration of a tender, he also would have submitted a tender and
competed for obtaining a contract. But he was precluded from submitting a
tender and entering the field of consideration by reason of the condition of
eligibility, while so far as the 4th respondents were concerned, their tender
was entertained and accepted even though they did not satisfy the
condition of eligibility and this resulted in inequality of treatment which
was constitutionally impermissible. This was the grievance made by the
appellant in the writ petition and there can be no doubt that if this
grievance were well founded, the appellant would be entitled to maintain
the writ petition. The question is whether this grievance was justified in
law and the acceptance of the tender of the 4th respondents was vitiated by
any legal infirmity.

Now, there can be no doubt that what paragraph (1) of the notice
prescribed was a condition of eligibility which was required to be satisfied
by every person submitting a tender. The condition of eligibility was that
the person submitting a tender must be conducting or running a registered
2nd class hotel or restaurant and he must have at least 5 years' experience
as such and if he did not satisfy this condition of eligibility his tender
would not be eligible for consideration. This was the standard or norm of
eligibility laid down by the 1 st respondent and since the 4th respondents
did not satisfy this standard or norm, it was not competent to the 1st
respondent to entertain the tender of the 4th respondents. It is a well settled
rule of administrative law that an executive authority must be rigorously
held to the standards by which it professes its actions to be judged and it
must scrupulously observe those Standards on pain of invalidation of an
act in violation of them. This rule was enunciat-

ed by Mr Justice Frankfurter in Viteralli v. Seton(l) where the learned

Judge said:

"An executive agency must be rigorously held to the standards by which it

professes its action to be judged. Accordingly, if dismissal from
employment is based on a define(l procedure, even though generous
beyond the requirement that bind such agency, that procedure must be
scrupulously observed. This judicially evolved rule of administrative law is
now firmly established and, if I may add, rightly so. He that takes the
procedural sword shall perish with the sword.

This Court accepted the rule as valid and applicable in India in A. S.

Ahuwalia v. Punjab(2) and in subsequent decision given in Sukhdev v.
Bhagatram,(3) Mathew, J., quoted the above-referred observations of Mr.
Justice Frankfurter with approval. It may be noted that this rule, though
supportable also as emanation from Article 14, does not rest merely on that
article. It has an independent existence apart from Article 14. It is a rule of
administrative law which has been judicially evolved as a check against
exercise of arbitrary power by the executive authority. If we turn to the
judgment of Mr. Justice Frankfurter and examine it, we find that he has not
sought to draw support for the rule from the equality clause of the United
States Constitution, but evolved it purely as a rule of administrative law.
Even in England, the recent trend in administrative law is in that direction
as is evident from what is stated at pages 540-41 in Prof. Wade's
Administrative Law 4th edition. There is no reason why we should hesitate
to adopt this rule as a part of our continually expanding administrative law.
To- day with tremendous expansion of welfare and social service
functions, increasing control of material and economic resources and large
scale assumption of industrial and commercial activities by the State, the
power of the executive Government to affect the lives of the people is
steadily growing. The attainment of socio-economic justice being a
conscious end of State policy, there is a vast and inevitable increase in the
frequency with which ordinary citizens come into relationship of direct
encounter with State power-holders. This renders it necessary to structure
and restrict the power of the executive Government so as to prevent its
arbitrary application or (1) 359 U. S. 535: 3 Law.Ed. (Second series) 1012
(2) [1975] 3. S. C. R. 82.

(3) [1975] 3. S. C. R. 619.

exercise. Whatever be the concept of the rule of law, whether it be the

meaning given by Dicey in his "The Law of the Constitution" or the
definition given by Hayek in his "Road to Serfdom' and 'Constitution of
liberty" or the exposition set-forth by Harry Jones in his "The Rule of Law
and the Welfare State", there is, as pointed out by Mathew, J., in his article
on "The Welfare State, Rule of Law and Natural Justice" in "democracy
Equality and Freedom," "substantial agreement is in justice thought that
the great purpose of the rule of law notion is the protection of the
individual against arbitrary exercise of power, wherever it is found". It is
indeed unthinkable that in a democracy governed by the rule of law the
executive Government or any of its officers should possess arbitrary power
over the interests of the individual. Every action of the executive
Government must be informed with reason and should be free from
arbitrariness. That is the very essence of the rule of law and its bare
minimal requirement. And to the application of this principle it makes no
difference whether the exercise of the power involves affection of some
right or denial of some privilege.

To-day the Government, is a welfare State, is the regulator and dispenser

of special services and provider of a large number of benefits, including
jobs contracts, licences, quotas, mineral rights etc. The Government pours
forth wealth, money, benefits, services, contracts, quotas and licences. The
valuables dispensed by Government take many forms, but they all share
one characteristic. They are steadily taking the place of traditional forms of
wealth. These valuables which derive from relationship to Government are
of many kinds. They comprise social security benefits, cash grants for
political sufferers and the whole scheme of State and local welfare. Then
again, thousands of people are employed in the State and the Central
Governments and local authorities. Licences are required before one can
engage in many kinds of business or work. The power of giving licences
means power to withhold them and this gives control to the Government or
to the agents of Government on the lives of many people. Many
individuals and many more businesses enjoy largess in the form of
Government contracts. These contracts often resemble subsidies. It is
virtually impossible to lose money on them and many enterprises are set up
primarily to do business with Government. Government owns and controls
hundreds of acres of pubic Land valuable for mining and other purposes.
These resources are available for utilisation by private corporations and
individuals by way of lease or licence. All these mean growth in the
Government largess and with the increasing magnitude and range of
governmental functions as we move closer to a welfare State, more and
more of our wealth consists of these new forms. Some of these forms of
wealth may be in the nature of legal rights but the large majority of them
are in the nature of privileges But on that account, can it be said that they
do not enjoy any legal protection ? Can they be regarded as gratuity
furnished by the State so that the State may withhold, grant or revoke it at
its pleasure ? Is the position of the Government in this respect the same as
that of a private giver? We do not think so. The law has not been slow to
recognise the importance of this new kind of wealth and the need to protect
individual interest in it and with that end in view, it has developed new
forms of protection. some interests in Government largess, formerly
regarded as privileges, have been recognised as rights while others have
been given legal protection not only by forging procedural safeguards but
also by confinding/structuring and checking Government discretion in the
matter of grant of such largess. The discretion of the Government has been
held to be not unlimited in that the Government cannot give or withhold
largess in its arbitrary discretion or at its sweet will. It is insisted, as
pointed out by Prof. Reich in an especially stimulating article on "The New
Property" in 73 Yale Law Journal 733, "that Government action be based
on standards that are not arbitrary or unauthorised." "The Government
cannot be permitted to say that it will give jobs or enter into contracts or
issue quotas or licences only in favour of those having grey hair or
belonging to a particular political party or professing a particular religions
faith. The Government is still the Government when it acts in the matter of
granting largess and it cannot act arbitrarily. It does not stand in the same
position as a private individual We agree with the observations of Mathew,
J., in V. Punnan Thomas v. State of Kerala(1) that: "The Government is
not and should not be as free as an individual in selecting the recepients for
its largess. Whatever its activity, the Government is still the Government
and will be subject to restraints, inherent in its position in a democratic
society. A democratic Government cannot lay down arbitrary and
capricious standards for the choice of persons with whom alone it will
deal". The same point was made by this court in Erusian Equipment and
Chemicals Ltd. v. State of West Bengal(2) where the question was whether
black-listing of a person without (1) AIR 1969 Kerala 81.
(2) [1975] 2 S.C.R. 674.

10-409 SCI/79 giving him an opportunity to be heard was bad ? Ray, C. J.,
speaking on behalf of himself and his colleagues on the Bench pointed out
that black-listing on a person not only affects his reputation which is in
Poundian terms an interest both of personality and substance, but also
denies him equality in the matter of entering into contract with the
Government and it cannot, therefore, be supported without fair hearing. It
was argued for the Government that no person has a right to enter into
contractual relationship with the Government and the Government, like
any other private individual, has the absolute right to enter into contract
with any one it pleases. But the Court, speaking through the learned Chief
Justice, responded that the Government is not like a private individual who
can pick and choose the person with whom it will deal, but the
Government is still a Government when it enters into contract or when it is
administering largess and it cannot, without adequate reason, exclude any
person from dealing with it or take away largess arbitrarily. The learned
Chief Justice said that when the Government is trading with the public,
"the democratic form of Government demands equality and absence of
arbitrariness and discrimination in such transactions. The activities of the
Government have a public element and, therefore, there should be fairness
and equality. The State need not enter into any contract with anyone, but if
it does so, it must do so fairly without discrimination and without unfair
procedure." This proposition would hold good in all cases of dealing by the
Government with the public, where the interest sought to be protected is a
privilege. It must, therefore, be taken to be the law that where the
Government is dealing with the public, whether by way of giving jobs or
entering into contracts or issuing quotas or licences or granting other forms
of largess, the Government cannot act arbitrarily at its sweet will and, like
a private individual, deal with any person it pleases, but its action must be
in conformity with standard or norms which is not arbitrary, irrational or
irrelevant. The power or discretion of the Government in the matter of
grant of largess including award of jobs, contracts, quotas, licences etc.,
must be confined and structured by rational, relevant and non-
discriminatory standard or norm and if the Government departs from
standard or norm in any particular case or cases, the action of the
Government would be liable to be struck down, unless it can be shown by
the Government that the departure was not arbitrary, but was based on
some valid principle which in itself was not irrational, unreasonable or
discriminatory.

Now, it is obvious that the Government which represents the executive

authority of the State, may act through the instrumentality Or agency of
natural persons or it may employ the instrumentality or agency of juridical
persons to carry out its functions. In the early days, when the Government
had limited functions, it could operate effectively through natural persons
constituting its civil service and they were found adequate to discharge
governmental functions, which were of traditional vintage. But as the tasks
of the Government multiplied the advent of the welfare State, it began to
be increasingly felt that the framework of civil service was not sufficient to
handle the new tasks which were often of specialised and highly technical
character. The inadequacy of the civil service to deal with these new
problems came to be realised and it became necessary to force a new
instrumentality or administrative device for handling these new problems.
It was in these circumstances and with a view to supplying this
administrative need that the public corporation came into being as the third
arm of the Government. As early as 1819 the Supreme Court of the United
States in Mac Cullough v. Maryland(1) held that the Congress has power
to charter corporations as incidental to or in aid of governmental functions
and, as pointed out by Mathew, J., in Sukhdev v. Bhagat Ram (supra) such
federal corporations would ex-hypothesi be agencies of the Government.
In Great Britain too, the policy of public administration through separate
corporations was gradually evolved and the conduct of basic industries
through giant corporations has now become a permanent feature of public
life. So far as India is concerned, the genesis of the emergence of
corporations as instrumentalities or agencies of Government is to be found
in the Government of India Resolution on Industrial Policy dated 6th April,
1948 where it was stated inter alia that "management of State enterprises
will as a rule be through the medium of public corporation under tile
statutory control of the Central Government who will assume such powers
as may be necessary to ensure this." It was in pursuance of the policy
envisaged in this and subsequent resolutions on Industrial Policy. that
corporations were created by Government for setting up and management
of public enterprises and carrying out other public functions. Ordinarily
these functions could have been carried out by Government departmentally
through its service personnel, but the instrumentality or agency of the
corporations was resorted to in these cases having regard to the nature of
the task to be performed. The corporations acting as instrumentality or
agency of Government would obviously be subject to the same limitations
in the field of constitutional and administrative law as Government itself,
though (1) 4 Wheat 315 in the eye of the law, they would be distinct and
independent legal entities. If Government acting through its officers is
subject to certain constitutional and public law limitations, it must follow a
fortiori that Government acting through the instrumentality or agency of
corporations should equally be subject to the same limitations. But the
question is how to determine whether a corporation is acting as
instrumentality or agency of Government. It is a question not entirely free
from difficulty.

A corporation may be created in one of two ways. It may be either

established by statute or incorporated under a law such as the Companies
Act 1956 or the Societies Registration Act 1860. Where a Corporation is
wholly controlled by Government not only in its policy making but also in
carrying out the functions entrusted to it by the law establishing it or by the
Charter of its incorporation, there can be no doubt that it would be an
instrumentality or agency of Government. But ordinarily where a
corporation is established by statute, it is autonomous in its working,
subject only to a provision, often times made, that it shall be bound by any
directions that may be issued from time to time by Government in respect
of policy matter. So also a corporation incorporated under law is managed
by a board of directors or committee of management in accordance with
the provisions of the statute under which it is incorporated. When does
such a corporation become an instrumentality or agency of Government ?
Is the holding of the entire share capital of the Corporation by Government
enough or is it necessary that in addition, there should be a certain amount
of direct control exercised by Government and, if so, what should be the
nature of such control ? Should the functions which the corporation is
charged to carry out possess any particular characteristic or feature, or is
the nature or the functions immaterial ? Now, one thing is clear that if the
entire share capital of the corporation is held by Government, it would go a
long way towards indicating that the corporation is an instrumentality or
agency of Government. But, as is quite often the case, a corporation
established by statute may have no shares or shareholders, in which case it
would be a relevant factor to consider whether the administration is in the
hands of a board of directors appointed by Government, though this
consideration also may not be determinative, because even while the
directors are appointed by Government, they may be completely free from
governmental control in the discharge of their functions. What then are the
tests to determine whether a corporation established by statute or
incorporated under law is an instrumentality or agency of Government ? It
is not possible to formulate an all-

inclusive or exhaustive test which would adequately answer this question

'there is no cut and dried formula, which would provide the correct
division of corporations into those which are instrumentalities or agencies
of Government and those which are not.

The analogy of the concept of State action as developed in the United

States may not, however, be altogether out of place while considering this
question. The decisions of the court in the United States seem to suggest
that a private agency, if supported by extraordinary assistance given by the
State, may be subject to the same constitutional limitations as the State. Of
course, it may be pointed out that "the State's general common law and
statutory structure under which its people carry on their private affairs,
own property and contract, each enjoying equality in terms of legal
capacity, is not such State assistance as would transform private conduct
into State action". But if extensive and unusual financial assistance is given
and the purpose of the Government in giving such assistance coincides
with the purpose for which the corporation is expected to use the assistance
and such purpose is if public character, it may be a relevant circumstance
supporting an extensive that the corporation is an instrumentality or agency
of Government. The leading case on the subject in the United States is
Kerr v. Eneck Pratt Free Library(1). The Library system in question in this
case was established by private donation in 1882, but by 1944, 99 per cent
of the system's budget was supplied by the city, title to the library property
was held by the city, employees there paid by the city payroll officer and a
high degree of budget control was exercised or available to the city
government. On these facts the Court of Appeal required the trustees
managing the system to abandon a discriminatory admission policy for its
library training courses. It will be seen that in this case there was
considerable amount of State control of the library system in addition to
extensive financial assistance and it is difficult to say whether, in the
absence of such control it would have been possible to say that the action
of the trustees constituted State action. Thomas P. Lewis has expressed the
opinion in his article on "The meaning of State Action" (60 Colombia Law
Review 1083) that in this case "it is extremely unlikely that absence of
public control would have changed the result as long as 99% of the budget
of a nominally private institution was provided by government. Such
extensive governmental support should be sufficient identification with the
Government to subject the institution to the provisions of the Fourteenth
Amendment".

(1) 149 F. 2d. 212.

It may, therefore, be possible to say that where the financial assistance of

the State is so much as to meet almost entire expenditure of the
corporation, it would afford some indication of the corporation being
impregegnated with governmental character. But where financial
assistance is not so extensive, it may not by itself, without anything more
render the corporation an instrumentality or agency of government, for
there are many private institutions which are in receipt of financial
assistance from the State and merely on that account, they cannot be
classified as State agencies. Equally a mere finding of some control by the
State would not be determinative of the question "since a State has
considerable measure of control under its police power over all types of
business operations". But 'a finding of State financial support plus an
unusual degree of control over the management and policies might lead
one to characteristic an operation as State action" vide Sukhdev v.
Bhagatram(1). So also the existence of deep and pervasive State control
may afford an indication that the Corporation is a State agency or
instrumentality. It may also be a relevant factor to consider whether the
corporation enjoys monopoly status which is State conferred or State
protected. There can be little doubt that State conferred or State protected
monopoly status would be highly relevant in assessing the aggregate
weight of the corporation's ties to the State. Vide the observations of
Douglas, J., in Jackson v. Metropolitan Edison Co.(2) There is also another
factor which may be regarded as having a bearing on this issue and it is
whether the operation of the corporation is an important public function. It
has been held in the United States in a number of cases that the concept of
private action must yield to a conception of State action where public
functions are being per formed. Vide Arthur S. Miller: "The Constitutional
Law of the Security State" (10 Stanford Law Review 620 at 664). It was
pointed out by Douglas, J., in Evans v. Newton(3) that "when private
individuals or groups are endowed by the State with powers or functions
governmental in nature, they become agencies or instrumentalities of the
State". Of course, with the growth of the welfare State, it is very difficult
to define what functions are governmental and what are not, because, as
pointed out by Villmer, L.J., in Pfizer v.Ministry of Health,(4) there has
been, since mid-Victorian times, "a revolution in political thought and a
totally different conception prevails today as to what is and what is not
within the functions of Government".

(I) [1975] 3 S. C. R. 619 at 658.

(2) 419 U. S. 345: 42 L. ed. 2nd 477 (3) 382 U S. 296: 15 L. ed 2nd 373.

(4) [1964] I Ch. 614.

Douglas, J., also observed to the same effect in New York v. United
States(1): " A State's project is as much a legitimate governmental activity
whether it is traditional or akin to private enterprise, or conducted for
profit." Cf. Helverillg v. Gerhardt(2). A State may deem it as essential to
its economy that it own and operate a railroad, a mill, or an irrigation
system as it does to own and operate bridges, street lights, or a sewage
disposal plant. What might have been viewed in an earlier day as an
improvident or even dangerous extension of state activities may today be
deemed indispensable. It may be noted that besides the so called traditional
functions, the modern State operates a multitude of public enterprises and
discharges a host of other public functions. If the functions of the
corporation are of public importance and closely related to governmental
functions, it would be a relevant factor in classifying the corporation as an
instrumentality or agency of Government. This is precisely what was
pointed out by Mathew, J., in Sukhdev v. Bhagatram (supra) where the
learned Judge said that "institutions engaged in matters of high public
interest or performing public functions are by virtue of the nature of the
functions performed government agencies. Activities which are too
fundamental to the society are by definition too important not to be
considered government functions."

This was one of the principal tests applied by the United States Supreme
Court in Marsh v. Alabama(3) for holding that a corporation which owned
a Company town was subject to the same constitutional limitations as the
State. This case involved the prosecution of Marsh, a member of the
Johevah's witnesses sect, under a state trespass statute for refusing to leave
the side walk of the company town where she was distributing her
religious pamphlets. She was fined $ 5/- and aggrieved by her conviction
she carried the matter right upto the Supreme Court contending
successfully that by reason of the action of the corporation her religious
liberty had been denied. The Supreme Court held that administration of
private property such as a town, though privately carried on, was,
nevertheless, in the nature of a public function and that the private rights of
the corporation must, therefore, be exercised within constitutional
limitations and the conviction for trespass was reversed. The dominant
theme of the majority opinion written by Mr. Justice Black was that the
property of the corporation used as a town not recognisably different from
other towns, lost its identification as purely private property. It was said
that a town may

(l) 326 U.S. 572.

(2) 304 U.S. 405, 426, 427.

(3) 326 U.S. 501: 19 L. ed. 265.

be privately owned and managed but that does not necessarily aIlow the
corporation to treat it as if it was wholly in the private sector and the
exercise of constitutionally protected rights on the public ,street of a
company town could not be denied by the owner. "The more an owner, for
his advantage, opens up his property for use by the public in general, the
more do his rights become circumscribed by the statutory and
constitutional rights of those who use it. . . Thus, the owners of privately
held bridges, ferries, turnpikes and railroads may not operate them as
freely as a farmer does his farm. Since these facilities are built and
operated primarily to benefit the public and since their operation is
essentially a public function, it is subject to state regulation". Mr. Justice
Frankfurter, concurring, reduced the case to simpler terms. He found in the
realm of civil liberties the need to treat a town, private or not, as a town.
The function exercised by the corporation was in the nature of municipal
function and it was, therefore, subject to the constitutional limitations
placed upon State action.

We find that the same test of public or governmental character of the

function was applied by the Supreme Court of the United States in Evans
v. Newton (supra) and Smith v. Allwight.(1) But the decisions show that
even this test of public or governmental character of the function is not
easy of application and does not invariably lead to the correct inference
because the range of governmental activity is broad and varied and merely
because an activity may be such as may legitimately be carried on by
Government, it does not mean that a corporation, which is otherwise a
private entity, would be an instrumentality or agency of Government by
reason of carrying on such activity. In fact, it is difficult to distinguish
between governmental functions and non-governmental functions. Perhaps
the distinction between governmental and non-governmental functions is
not valid any more in a social welfare State where the laissez faire is an
outmoded concept and Herbert Spencer's social statics has no place. The
contrast is rather between governmental activities which are private and
private activities which are governmental. (Mathew, J. Sukhdev v.
Bhagatram (supra) at p. 652). But the public nature of the function, if
impregnated with governmental character or "tied or entwined with
Government" or fortified by some other additional factor, may render the
corporation an instrumentality or agency of Government. Specifically, if a
department of Government is transferred to a corporation, it would be a
strong factor supportive of this inference.

(1) 321 U. S. 649.

It will thus be seen that there are several factors which may have to be
considered in determining whether a corporation is an agency or
instrumentality of Government. We have referred to some of these factors
and they may be summarised as under: whether there is any financial
assistance given by the State, and if so, what is the magnitude of such
assistance whether there is any other form of assistance, given by the State,
and if so, whether it is of the usual kind or it is extraordinary, whether
there is any control of the management and policies of the corporation by
the State and what is the nature and extent of such control, whether the
corporation enjoys State conferred or State protected monopoly status and
whether the functions carried out by the corporation are public functions
closely related to governmental functions. This particularisation of relevant
factors is however not exhaustive and by its very nature it cannot be,
because with increasing assumption of new tasks, growing complexities of
management and administration and the necessity of continuing adjustment
in relations between the corporation and Government calling for flexibility,
adapt ability and innovative skills, it is not possible to make an exhaustive
enumeration of the tests which would invariably and in all cases provide an
unfailing answer to the question whether a corporation is governmental
instrumentality or agency. Moreover even amongst these factors which we
have described, no one single factor will yield a satisfactory answer to the
question and the court will have to consider the cumulative effect of these
various factors and arrive at its decision on the basis of a particularised
inquiry into the facts and circumstances of each case. "the dispositive
question in any stale action case," as pointed out by Douglas, J., in Jackson
v. Metropolitan Edison Company (supra) "is not whether any single fact or
relationship presents a sufficient degree of state involvement, but rather
whether the aggregate of all relevant factors compels a finding of state
responsibility." It is not enough to examine seriatim each of the factors
upon which a corporation is claimed to be an instrumentality or agency of
Government and to dismiss each individually as being insufficient to
support a finding of that effect. It is the aggregate or cumulative affect of
all the relevant factors that is controlling. G Now, obviously where a
corporation is an instrumentality or agency of Government, it would, in the
exercise of its power or discretion, be subject to the same constitutional or
public law limitations as Government. 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 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.

This rule also flows directly from the doctrine of equality embodied in Art.
14. It is now well settled as a result of the decisions of this Court hl E. P.
Rayappa v. State cf Tamil Nadu(l) and Maneka Gandhi v. Union of
India(2) that Article 14 strikes at arbitrariness in State action and ensures
fairness and equality of treatment. It requires that State action must not be
arbitrary but must be based on some rational and relevant principle which
is non- discriminatory: 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 element of equality or non-arbitrariness is
protected by Article 14 and it must characterise every State action, whether
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 some standard or norm which is rational and non-
discriminatory. This principle was recognised and applied by a Bench of
this Court presided over by Ray, C.J., in Erusian Equipment and
Chemicals v. State of West Bengal (supra) where the learned Chief Justice
pointed out that "the State can carry on executive function by making a law
or without making a law. The exercise of such powers and functions in
trade by the State is subject to Part III of the Constitution. Article
14 speaks of equality before the law and equal protection of the laws.
Equality of opportunity should apply to matters of public contracts. The
State has the right to trade. The State has there the duty to observe
equality. An ordinary individual can choose not to deal with any person
The Government cannot choose to exclude persons by discrimination. The
order of black- listing has the effect of depriving a person of equality of
opportunity in the matter of public contract. A person who is on the
approved list is unable to enter into advantageous relations with the
Government because of the order of blacklisting.... A citizen has a right to
claim equal treatment to enter into a contract which may be proper,
necessary and essential to his lawful calling....It is true that neither the
petitioner nor the respondent has any right to enter into a contract but they
are entitled to equal treatment with others who offer tender or quotations
for the purchase of the (1) [1974] 2 S. C. R. 348.

(2) 1978] 2 S. C. R. 621.

goods." It must, therefore follow as a necessary corollary from the

principle of equality enshrined in Article 14 that though the State is
entitled to refuse to enter into relationship with any one, yet if it does so, it
cannot arbitrarily choose any person it likes for entering into such
relationship and discriminate between persons similarly circumstanced, but
it must act in conformity with some standard or principle which meets the
test of reasonableness and non-discrimination and any departure from such
standard or principle would be invalid unless it can be supported or
justified on some rational and non-discriminatory ground.

It is interesting to find that this rule was recognised and applied by a

Constitution Bench of this Court in a case of sale of kendu leaves by the
Government of Orissa in Rashbihari Panda v. State of Orissa.(1) The trade
of kendu leaves in the State of Orissa was regulated by the Orissa Kendu
Leaves (Control of Trade) Act, 1961 and this Act created a monopoly in
favour of the State so far as purchase of kendu leaves from growers and
pluckers was concerned. Section 10 of the Act authorised the Government
to sell or otherwise dispose of kendu leaves purchased in such manner as
the Government might direct. The Government first evolved a scheme
under which it offered to renew the Licences of those traders who in its
view had worked satisfactorily in the previous year and had regularly paid
the amount due from them. The scheme was challenged and realising that
it might be struck down, the Government withdrew the scheme and
instead, decided to invite tenders for advance purchase of kendu leaves but
restricted the invitation to those individuals who had carried out contracts
in the previous year without default and to the satisfaction of the
Government. This method of sale of kendu leaves was also challenged by
filing a writ petition on the ground inter alia that it was violative of
Articles ]4 and 19(1)(g) and this challenge, though negatived by the High
Court, was upheld by this Court in appeal. The Court pointed out that the
original scheme of offering to enter into contracts with the old licences and
to renew their terms was open to grave objection, since it sought arbitrarily
to exclude many persons interested in the trade and the new scheme under
which the Government restricted the invitation to make offers to those
traders who had carried out their contracts in the previous year without
default and to the satisfaction of the Government was also objectionable,
since the right to make tenders for the purchase of kendu leaves being
restricted to a limited (1) [1969] 3 S.C.R. 374.

class of persons, it effectively shut out all other persons carrying on trade
in kendu leaves and also the new entrants into that business and hence it
was ex-facie discriminatory and imposed unreasonable restrictions upon
the right of persons other than the existing contractors to carry on business.
Both the schemes evolved by the Government were thus held to be
violative of Articles 14 and 19(1)(g) because they "gave rise to a monopoly
in the trade in kendu leaves to certain traders and singled out other traders
for discriminatory treatment". The argument that existing contractors who
had carried out their obligations in the previous year regularly and to the
satisfaction of the Government formed a valid basis of classification
bearing a just and reasonable relation to the object sought to be achieved
by the sales namely, effective execution of the monopoly in the public
interest, was also negatived and it was pointed out that: "exclusion of all
persons interested in the trade, who were not in the previous year
licencees, is ex facie arbitrary; it had not direct relation to the object of
preventing exploitation of pluckers and growers of kendu leaves, nor had it
any just or reasonable relation to the securing of the full benefit from the
trade, to the State".

The Court referred to the offer made by a well known manufacturer of

bidis for purchase of the entire crop of kendu leaves for a sum of Rs. 3
crores which was turned down by the Government and expressed its
surprise that no explanation was attempted to be given on behalf of the
State as to why such an offer, from which the State stood to gain more than
Rs. 1 crore, was rejected by the Government. It will be seen from this
judgment that restricting the invitation to submit tenders to a limited class
of persons was held to be violative of the equality clause, because the
classification did not bear any. just and reasonable relation to the object
sought to be achieved, namely, selling of kendu leaves in the interest of
general public. The standard or norm laid down by the Government for
entering into contracts of sale of tendu leaves with third parties was
discriminatory and could not stand the scrutiny of Article 14 and hence the
scheme was held to be invalid. The Court rejected the contention of the
Government that by reason of section 10 it was entitled to dispose of
kendu leaves in such manner as it thought fit and there was no limitation
upon its power to enter into contracts for sale of kendu leaves with such
persons it liked. The Court held that the Government was, in the exercise
of its power to enter into contracts for sale of kendu leaves; subject to the
constitutional limitation of Article 14 and it could not act arbitrarily in
selecting persons with whom to enter into contracts and discriminate
against others similarly situate. The Court criticised the Government for
not giving any explanation as to why an offer for a large amount was not
accepted, the clearest implication being that the Government must act in
the public interest; it cannot act arbitrarily and without reason and if it does
so, its action would be liable to be invalidated. This decision wholly
supports the view we are taking in regard to The applicability of the rule
against arbitrariness in State action. B We may also in this connection refer
to the decision of this Court in C. K. Achuthan v. State of Kerala(1), where
Hidayatullah, J., speaking on behalf of The Court made certain observation
which was strongly relied upon on behalf of the respondents. The facts of
this case were that the petitioner and the 3rd respondent Co-operative Milk
Supply Union, Cannanore, submitted tenders for the supply of milk to the
Government hospital at Cannanore for the year 1948-

49. The Superintendent who scrutinised the tenders accepted that of the
petitioner and communicated the reasons for the decision to the Director of
Public Health. The resulting contract in favour of the petitioner was,
however, subsequently cancelled by issuing a notice in terms of clause (2)
of the tender, in pursuance of the policy of the Government that in the
matter of supply to Government Medical Institutions the Co-operative
Milk Supply Union should be given contract on the basis of prices filed by
the Revenue Department. The petitioner challenged The decision of the
Government in a petition under Article 32 of the Constitution on the
ground inter alia that there had been discrimination against him vis-a-vis
the 3rd respondent and as such, there was contravention of Article 14 of
the Constitution. The Constitution Bench rejected this contention of the
petitioner and while doing so, Hidayatullah, J., made the following
observation: "There is no discrimination, because it is perfectly open to the
Government, even as it is to a private party, to choose a person to their
liking, to fulfil contracts which they wish to be performed. When one
person is choosen rather than another, the aggrieved party cannot claim the
protection of Article 14, because the choice of the person to fulfil a
particular contract must be left to the Government." The respondents relied
very strongly on this observation in support of their contention that it is
open to the 'State' to enter into contract with any one it likes and choosing
one person in preference to another for entering into a contract does not
involve violation of Article 1a. Though the language in which this
observation is couched is rather wide, we do not think that in making this
observation, the Court. intended to lay down any absolute proposition
permitting the state to act arbitrarily in the matter of entering into contract
with (1) [1959] Supp. 1 S C. R. 787.

third parties. We have no doubt that the Court could not have intended to
lay down such a proposition because Hidayatullah J. who delivered the
judgment of the Court in this case was also a party to the judgment
in Rashbihari Panda v. State of Orissa (supra) which was also a decision of
the Constitution Bench, where it was held in so many terms that the State
cannot act arbitrarily in selecting persons with whom to enter into
contracts. Obviously what the Court meant to say was that merely because
one person is chosen in preference to another, it does not follow that there
is a violation of Article 14, because the Government must necessarily be
entitled to make a choice. But that does not mean that the choice be
arbitrary or fanciful. The choice must be dictated by public interest and
Must not be unreasoned or unprincipled.

The respondents also relied on the decision of this Court in Trilochan

Mishra v. State of Orissa & ors.(1) The complaint of the petitioner in that
case was that the bids of persons making the highest tenders were not
accepted and persons who had made lesser bids were asked to raise their
bids to the highest offered and their re vised bids were accepted. The
Constitution Bench negatived this complaint and speaking through Mitter,
J., observed:

"With regard to the grievance that in some cases the bids of persons
making the highest tenders were not accept ed, The facts are that persons
who had made lower bids were asked to raise their bids to the highest
offered before the same were accepted. Thus there was no loss to
Government and merely because the Government preferred one tender to
another no complaint can be entertained. Government certainly has a right
to enter into a contract with a person well known to it and specially one
who has faithfully performed his contracts in the past in preference to an
undesirable or unsuitable or untried person. Moreover, Government is not
bound to accept the highest tender but may accept a lower one in case it
thinks that the person offering the lower tender is on an overall
consideration to be preferred to the higher tenderer."

We fail to see how this observation can help the contention of the
respondents. It does not say that the Government can enter into contract
with any one it likes arbitrarily and without reason. On the contrary, it
postulates that the Government may reject a higher tender and accept a
lower one only when there is valid reason lo do so, as for example, where
it is satisfied that the person offering the Lower
1) [1971] 3 S. C. C. 153.

tender is on an overall consideration preferable to the higher tenderer.

There must be some relevant reason for preferring one tenderer to another,
and if there is, the Government can certainly enter into contract with the
former even though his tender may be lower but it cannot do so arbitrarily
or for extraneous reason.

There was also one other decision of this Court in State of Orissa v.
Harinarayan Jaiswal & ors.(1) which was strongly relied upon on behalf of
the respondents. There the respondents were the highest bidders at an
auction held by the orissa Government through the Excise Commissioner
for the exclusive privilege of selling by retail country liquor in some shops.
The auction was held pursuant to an order dated 6th January, 1971 issued
by the Government of orissa in exercise of the power conferred
under section 29(2) of the Bihar & orissa Excise Act, 1915 and clause (6)
of this order provided that "no sale shall be deemed to be final unless
confirmed by the State Government who shall be at liberty to accept or
reject any bid without assigning any reason therefor". The Government of
orissa did not accept any of the bids made at the auction and subsequently
sold the privilege by negotiations with some other parties. One of the
contentions raised on behalf of the petitioners in that case was that the
power retained by the Government "to accept or reject many bid without
any reason therefor" was an arbitrary power violative of Articles 14 and
19(1) (g). This contention was negatived and Hegde, J. speaking on behalf
of the Court observed:

"The Government is the guardian of the finances of the State. It is expected

to protect the financial interest of the State. Hence quite naturally, the
legislature has empowered the Government to see that there is no leakage
in its revenue. It is for the Government to decide whether the price offered
in on auction sale is adequate. While accepting or rejecting a bid, it is
merely performing an executive function. The correctness of its conclusion
is not open to judicial review. We fail to see how the plea of contravention
of Article 19(1)(g) or Article 14 can arise in these cases. The Governments
power to sell the exclusive privilege set out in section 22 was not denied. It
was also not disputed that these privileges could be sold by public auction.
Public auctions are held to get the best possible price. Once these aspects
are recognised, there appears to be no basis for contending that the owner
of the privileges (1) [1972] 2 S.C.C. 36.
in question who had offered to sell them cannot decline to accept the
highest bid if he thinks that the price offered is inadequate."

It will be seen from these observations that the validity of clause (6) of the
order dated 6th January, 1971 was upheld by this Court on the ground that
having regard to the object of holding the auction, namely, to raise
revenue, the Government was entitled to reject even the highest bid, if it
thought that the price offered was inadequate. The Government was not
bound to accept the tender of the person who offered the highest amount
and if the Government rejected all the bids made at the auction, it did not
involve any violation of Article 14 or 19(1)(g). This is a self-evident
proposition and we do not see how it can be of any assistance to the
respondents.

The last decision to which reference was made on behalf of the

respondents was the decision in P. R. Quenin v. M. K. Tendel(1) This
decision merely reiterates the principle laid down in the earlier decisions
in Trilochan Mishra v. State of Orissa (supra) and State of Orissa v.
Harinarayan Jaiswal (supra) and points out that a condition that the
Government shall be at liberty to accept or reject any bid without assigning
any reason therefor is not violative of Article 14 and that "in matters
relating to contracts with the Government, the latter is not bound to accept
the tender of the person who offers the highest amount". Now where does
it say that such a condition permits the Government to act arbitrarily in
accepting a tender or that under the guise or pretext of such a condition, the
Government may enter into a contract with any person it likes, arbitrarily
and without reason. In fact the Court pointed out at the end of the judgment
that the act of the Government was not "shown to be vitiated by such
arbitrariness as should call for interference by the Court", recognising
clearly that if the rejection of the tender of the 1st respondent were
arbitrary, the Court would have been justified in striking it down as
invalid.
Now this rule, flowing as it does from Article 14, applies to every State
action and since "State" is defined in Article 12 to include not only the
Government of India and the Government of each of the States, but also
"all local or other authorities within the territory of India or under the
control of the Government of India", it must apply to action of "other
authorities" and they must be held subject to the same constitutional
limitation as the Government. But the question arises what are the "other
authorities" contemplated by Article 12 which fall within the definition of
'State' ? on this ques-

(1) [1974] 3 S. C. R. 64.

tion considerable light is thrown by the decision of this Court in Rajasthan

Electricity Board v. Mohan Lal(1). That was a case in which this Court
was called upon to consider whether the Rajasthan Electricity Board was
an 'authority' within the meaning of the expression "other authorities"
in Art. 12. Bhargava, J., delivering the judgment of the majority pointed
out that the expression "other authorities" in Art. 12 would include all
constitutional and statutory authorities on whom powers are conferred by
law. The learned Judge also said that if any body of persons has authority
to issue directions the disobedience of which would be punishable as a
criminal offence, that would be an indication that that authority is 'State'.
Shah, J., who delivered a separate judgment, agreeing with the conclusion
reached by the majority, preferred to give a slightly different meaning to
the expression "other authorities". He said that authorities, constitutional or
statutory, would fall within the expression "other authorities" only if they
are invested with the sovereign power of the State, namely, the power to
make rules and regulations which have the force of law. The ratio of this
decision may thus be stated to be that a constitutional or statutory authority
would be within the meaning of the expression "other authorities", if it has
been invested with statutory power to issue binding directions to third
parties, the disobedience of which would entail penal consequence or it has
the sovereign power to make rules and regulations having the force of law.
This test was followed by Ray, C.J., in Sukhdev v. Bhagat Ram (supra).
Mathew, J., however, in the same case, propounded a broader test, namely,
whether the statutory corporation or other body or authority, claimed to fall
within the definition of State', is as instrumentality or agency of
Government: if it is, it would fall within the meaning of the expression
'other authorities' and would be State'. Whilst accepting the test laid down
in Rajasthan Electricity Board v. Mohan Lal (supra), and followed by Ray,
C. J., in Sukhdev v. Bhagat Ram (supra), we would, for reasons already
discussed, prefer to adopt the test of Governmental instrumentality or
agency as one more test and perhaps a more satisfactory one for
determining whether a statutory corporation, body or other authority falls
within the definition of 'State'. If a statutory corporation, body or other
authority is an instrumentality or agency of Government, it would be an
'authority' and therefore 'State' within the meaning of that expression
in Article 12.

It is necessary at this stage to refer to a few decisions of this Court which

seem to bear on this point and which require a little (1) [1967] 3 S C, R
377 11-904 SCI/79 explanation. The first is the decision in Praga Tools
Corporation v. C. A. Imanuel.(1) This was a case in which some of the
workmen sought a writ of mandamus against Praga Tools Corporation
which was a company with 56 per cent of its share capital held by the
Centra1 Government, 32 per cent by the Andhra Pradesh Government and
12 per cent by private individuals. The Court held that a writ of mandamus
did not lie, because Praga Tools Corporation "being a non statutory body
and one incorporated under the Companies Act, there was neither a
statutory nor a public duty imposed on it by a statute in respect of which
enforcement could be sought by means of mandamus, nor was there in its
workmen any corresponding legal right for enforcement of any such
statutory or public duty." (emphasis supplied). It is difficult to see how this
decision can be of any help in deciding the present issue before us. This
was not a case where Praga Tools Corporation claimed to be an
instrumentality of government or an 'authority' within the meaning
of Article 12. The only question was whether a writ of mandamus could lie
and it was held that since there was no duty imposed on Praga Tool
Corporation by statute, no writ of mandamus could issue against it.

The second decision to which we must refer is that in Heavy Engineering

Mazdoor Union v. State of Bihar(2). The question which arose in this case
was whether a reference of an industrial dispute between the Heavy
Engineering Corporation Limited (hereinafter referred to as the
'Corporation') and the Union made by the State of Bihar under section
10 of the Industrial Disputes Act, 1947 was valid. The argument of the
Union was that the industry in question was "carried on under the authority
of the Central Government" and the reference could, therefore, be made
only by the Central Government. The Court held that the words "under the
authority" mean "pursuant to the authority, such as where an agent or a
servant acts under of pursuant to the authority of his principal or master"
and on this view, the Court addressed itself to the question whether the
Corporation could be said to be carrying on business pursuant to the
authority of the Central Government. The answer to this question was
obviously 'no' because the Corporation was carrying on business in virtue
of the authority derived from its memorandum and articles of association
and not by reason of any authority granted by the Central Government. The
Corporation, in carrying on business, was acting on its own behalf and not
on behalf of the Central Government and it was therefore not a servant or
agent of the Central Government in the sense that its actions would bind
the Central Government. There (1) [1969] 3 S. C. R. 773, (2) [1969] 3 S.
C. R 995.

was no question in this case whether the Corporation was an

instrumentality of the Central Government and therefore an 'authority
within the meaning of Article 12. We may point out here that when we
speak of a Corporation being an instrumentality or agency of Government,
we do not mean to suggest that the Corporation should be an agent of the
Government in the sense that whatever it does should be binding on the
Government. It is not the relationship of principal and agent which is
relevant and material but wether the Corporation is an instrumentality of
the Government in the sense that a part of the governing power of the State
is located in the Corporation and though the Corporation is acting on its
own behalf and not on behalf of the Government, its action is really in the
nature of State action. This decision dealing with an altogether different
point has no bearing on the present issue.
We may then refer to the decision in S. L. Aggarwal v. General Manager,
Hindustan Steel Limited.(1) This decision has also no relevance to the
point at issue before us, since the only question in that case was wether all
Assistant Surgeon in the employment of Hindustan Steel Limited could be
said to be holding a civil post under the Union or a State so as to be
entitled to the protection of Article 311(2) of the Constitution. The Court
held that Hindustan Steel Limited was not a department of the Government
nor were its employees holding posts under the State within the meaning
of Article 311(2). The decision was clearly right and indeed it could not be
otherwise since Hindustan Steel Limited, which was a distinct and
independent legal entity, was not a department of the Government and
could not be regarded as State for the purpose of Article 311(2). It may be
noted that the Court was not concerned with the question whether
Hindustan Steel Limited was an 'authority' within the meaning of Articlc
12.

Lastly, we must refer to the decision in Sarbhajit Tewari v. Union of India

& ors.(2) where the question was whether the Council of Scientific and
Industrial Research was an 'authority' within the meaning of Article
12. The Court no doubt took the view on the basis of facts relevant to the
constitution and functioning of the council that it was not an 'authority', but
we do not find any discussion in this case as to what are the features which
must be present before a corporation can be regarded as an 'authority'
within the meaning of Article 12. This decision does not lay down any
principle or test for the purpose of determining when a corporation can be
said to be an 'authority'. If at all any test can be gleaned from the decision,
it is (1) [1970] 3 S. C. R. 363.

(2) [1975] 1 S. C. C. 485.

whether the Corporation is 'really an agency of the Government". The

Court seemed to hold on The facts that the Council was not an agency of
the Government and was, therefore, not an 'authority'.

We may examine, in the light of this discussion, whether the 1st

respondent, namely, the International Airport Authority of India,, can be
said to be an authority falling within the definition of 'State' in Article
12. It is necessary to refer to some of the provisions of the International
Airport Authority Act, 1971 (hereinafter referred to as the Act) for the
purpose of determining this question. Sub-section (1) of section 3 of the
Act provides that the Central Government shall constitute an authority to
be called the International Airport Authority of India, to whom we shall
hereafter refer as the 1st respondent. Sub- section (2) states that the 1 st
respondent shall be a body corporate having perpetual succession and a
common seal and sub-section (3) enacts that the Ist respondent shall
consist of a Chairman to be appointed by the Central Government, the
Director General of Civil Aviation exofficio and not less than six and not
more than thirteen members to be appointed by the Central Government.
The term of office of every member of the 1st respondent is prescribed by
sub-section (1) of section 5 to be 3 years, but the Central Government is
given under the Proviso power to terminate the appointment of any
member who is not a servant of the Government after giving him notice as
also to terminate at any time the appointment of any member who is a
servant of the Government. The power to remove a member in certain
specified circumstances is also vested in the Central Government
under section 6. Section 32, sub-section (1) provides that as from the date
appointed by the Central Government all properties and other assets vested
in the p Central Government for the purposes of the airport and
administered by the Director General of Civil Aviation immediately before
such date shall vest in the 1st respondent and all debts, obligations and
liabilities incurred, all contracts entered into and all matters and things
engaged to be done by, with or for the Central Government immediately
before such date shall be deemed to have been incurred, entered into and
engaged to be done by, with or for the 1st respondent. This sub-section
also says that all non-recurring expenditure incurred by the Central
Government for or in connection with the purposes of the airport upto the
appointed date and declared to be capital expenditure by the Central
Government shall be treated as the capital provided by the Central
Government to the 1st respondent and all sums of money due to the
Central Government in relation to the airport immediately before the
appointed date shall be deemed to be due to the 1st respondent. The 1st
respondent is also given the power to institute or continue all suits and
other legal proceedings instituted or which could have been instituted by or
against the Central Government for any matter in relation to the airport and
every employee holding any office under the Central Government
immediately before the appointed date solely or mainly for or in
connection with the affairs of the airport shall be treated as on deputation
with the 1st respondent. Sub-section (1) of section 12 also enacts similar
provisions with regard to the air navigation services and the buildings used
exclusively for such services immediately before the appointed date. The
functions of the 1st respondent are specified in section 16: sub-section (l)
provides that, subject to the rules, if any, made by the Central Government
in this behalf, it shall be the function of the 1st respondent to manage the
airports efficiently and sub-section (2) casts an obligation on the 1 st
respondent to provide at the airports such services and facilities as are
necessary or desirable for the efficient operation of air transport services
and certain specific functions to be performed by the 1st respondent are
particularised in sub-section (3). These. functions were, until the appointed
date, being carried out by the Central Government but now under Section
16 they are transferred to the ] st respondent. Section 20 provides that after
making provision for reserve funds, bad and doubtful debts, depreciation in
assets and an other matters which are usually provided for by companies,
the 1st respondent shall pay the balance of its annual net profits to the
Central Government. Section 21 requires the 1st respondent to submit for
the approval of the Central Government a statement of the programme of
its activities during the forthcoming financial year as well as its financial
estimate in respect thereof at least three months before the commencement
of each financial year and section 24 provides that the accounts of the 1st
respondent shall be audited annually by the Comptroller and Auditor
General and the accounts as certified by the Comptroller and Auditor
General or any other person appointed by him in this behalf, together with
the audit report thereon, shall be forwarded to the Central Government and
the Central Government shall cause the same to be laid before both Houses
of Parliament. The 1st respondent is also required by section 25 to prepare
and submit to the Central Government, as soon as may be after the end of
each financial year, a report giving an account of its activities during the
financial year and this report has to be laid before both Houses of
Parliament by the Central Government. The officers and employees of the
1st respondent are deemed by section 28 to be public servants and section
29 gives them immunity from suit, prosecution or other legal proceeding
for anything in good faith done or intended to he done in pursuance of the
Act or any rule or regulation made under it. Section 33 confers power on
the Central Government to temporarily divest the 1st respondent from the
management of any airport and to direct the 1st respondent to entrust such
management to any other person. The Central Government is also
empowered by section 34 lo supersede the 1st respondent under certain
specified circumstances. Section 35 gives power to the Central
Government to give directions in writing from time to time on questions of
policy and provides that the 1 st respondent shall in the discharge of its
functions, and duties, be bound by such directions. Section 36 confers rule
making power on the Central Government for carrying out the purposes of
the Act and power to make regulations is conferred on the 1st respondent
under section 37. Section 39 provides that any regulation made by the 1st
respondent under any of the clauses (g) to

(m) of sub-section (2) of section 37 may make it Penal to contravene such

regulation.

lt will be seen from these provisions that there are certain features of the 1
st respondent which are eloquent and throw considerable light on the true
nature of the 1st respondent. In the first place, the chairman and members
of the 1st respondent are all persons nominated by the Central Government
and the Central Government has also the power to terminate their
appointment as also to remove them in certain specified circumstances.
The Central Government is also vested with the power to take away the
management of any airport from the 1st respondent and to entrust it to any
other person or authority and for certain special reasons, the Central
Government can also supersede the Ist respondent. The Central
Government has also power to give directions in writing,, from time to
time on questions of policy and these directions are declared binding on
the 1st respondent. The 1st respondent has no share capital but the capital
needed by it for carrying out its functions is provided wholly by the
Central Government. The balance of the not profit made by the Ist
respondent after making provision for various charges, such as reserve
funds, had and doubtful debts depreciation in assets etc. does not remain
with the 1st respondent and is required to be paid over lo the Central
Government. The 1st respondent is also required to submit to the Central
Government for its approval a statement of the programme of its activities
as also the financial estimate and it must follow as a necessary corollary
that the 1 st respondent can carry out only such activities and incur only
such expenditure as is approved by the Central Government. The audited
accounts of the 1st respondent together with the audit report have to be
forwarded to the Central Government and they are required to be laid
before both Houses of Parliament. So far as the functions of the 1st
respondent are concerned, the entire department of the Central
Government relating to the administration of airports and air nevigation
services together with its properties and assets, debts, obligations and
liabilities, contracts, causes A of action and pending litigation is
transferred to the 1st respondent and the 1st respondent is charged with
carrying out the same functions which were, until the appointed date, being
carried out by the Central Government. The employees and officers on the
1st respondent are also deemed to be public servants and the 1st
respondent as well as its members, officers and employees are given
immunity for anything which is in good faith done or intended to be done
in pursuance of the Act or any rule or regulation made under it. The 1st
respondent is also given power to frame Regulations and to provide that
contravention of certain specified Regulations shall entail penal
consequence. These provisions clearly show that every test discussed
above is satisfied in the case of the 1st respondent and they leave no doubt
that the 1st respondent is an instrumentality or agency of the Central
Government and falls within the definition of 'State' both on the 'narrow
view taken by the majority in Sukhdev v. Bhagat Ram (supra) as also on
the broader view of Mathew, J., adopted by us.

It is, therefore, obvious that both having regard to the constitutional

mandate of Article 14 as also the judicially evolved rule of administrative
law, the 1st respondent was not entitled to act arbitrarily in accepting the
tender of the 4th respondents, but was bound to conform to the standard or
norm laid down in paragraph 1 of the notice inviting tenders which
required that only a person running a registered IInd Class hotel or
restaurant and having at least S years' experience as such should be eligible
to tender. It was not the contention of the appellant that this standard or
norm prescribed by the 1st respondent was discriminatory having no just or
reasonable relation to the object of inviting tenders namely, to award the
contract to a sufficiently experienced person who would be able to run
efficiently a IInd class restaurant at the airport. Admittedly the standard or
norm was reasonable and non-discriminatory and once such a standard or
norm for running a IInd Class restaurant should be awarded was laid down,
the 1st respondent was not entitled to depart from it and to award the
contract to the 4th respondents who did not satisfy the condition of
eligibility prescribed by the standard or norm. If there was no acceptable
tender from a person who satisfied the condition of eligibility, the 1st
respondent could have rejected the tenders and invited fresh tenders on the
basis of a less stringent standard or norm, but it could not depart from the
standard or norm prescribed by it and arbitrarily accept the tender of the
4th respondents. When the 1st respondent entertained the tender of the 4th
respondents even though they did not have 5 years' experience of running a
IInd Class restaurant or hotel, denied equality of opportunity to others
similarly situate in the matter of tendering for the contract. There might
have been many other persons, in fact the appellant himself claimed to be
one such person, who did not have 5 years' experience of running a IInd
Class restaurant, but who were otherwise competent to run such a
restaurant and they might also have competed with the 4th respondents for
obtaining the contract, but they were precluded from doing so by the
condition of eligibility requiring five years' experience. The action of the
1st respondent in accepting the tender of the 4th respondents, even though
they did not satisfy the prescribed condition of eligibility, was clearly
discriminatory, since it excluded other person similarly situate from
tendering for the contract and it was plainly arbitrary and without reason.
The acceptance of the tender of the 4th respondents was, in the
circumstances invalid as being violative of the equality clause of the
Constitution as also of the rule of administrative law inhibiting arbitrary
action.

Now, on this view we should have ordinarily set aside the decision of the,-
1st respondent accepting the tender of the 4th respondents and the contract
resulting from such acceptance but in view of the peculiar facts and
circumstances of the present case, we do not think it would be a sound
exercise of discretion on our part to upset that decision and void the
contract. It does appear from the affidavits filed by the parties that the
appellant has no real interest in the result of the litigation, but has been put
up by A. S. Irani for depriving the 4th respondents of the benefit of the
contract secured by them. We find that a number of proceedings have been
instituted for this purpose from time to time by A. S. Irani either personally
or by instigating others to take such proceedings. The first salvo in the
battle against the 4th respondents was fired by K. S. Irani, proprietor of
Cafe Excelsior, who filed a suit challenging the decision of the 1st
respondent to accept the tender of the 4th respondents, but in this suit he
failed to obtain an interim injunction and his appeal was dismissed by the
High Court on 19th October, 1977. It is significant that when the tenders
were opened in the office of the Airport Director, Cafe Excelsior was
represented by A. S. Irani, which shows that either Cafe Excelsior was a
nominee of A. S. Irani or in any event K. S. Irani, proprietor of Cafe
Excelsior, was closely connected with A. S. Irani. Moreover, it is
interesting to note that though the tender of the 4th respondents was
accepted as far back as 19th April, 1977, K. S. Irani did not adopt any
proceedings immediately but filed the suit only after A. S. Irani was
informed by the Airport Director on 22nd August, 1977 that a final order
has been received from the Ministry requiring A. S. Irani to immediately
close down his restaurant and snack bars. It is also a circumstance not
without significance that A. S. Irani did not immediately take any
proceeding for challenging the acceptance of the tender of the 4th
respondents, but filed a suit in his own name only after the appeal of K. S.
Irani was dismissed by the High Court on 19th October, 1977. These
circumstances clearly indicate that the suit was filed by K. S. Irani at the
instance of A. S. Irani or in any event in concert with him and when the
suit of K. S. Irani failed to achieve the desired result, A. S. Irani stepped
into the arena and filed his own suit. This suit was for a mandatory
injunction seeking removal of the two snack bars which had in the
meantime' been put up by the 4th respondents pursuant to the acceptance
of their tender by the 1st respondent. But in this proceeding also A. S. Irani
failed to obtain an ad- interim injunction. It was only after the failure to
obtain interim relief in these two proceedings, one by K. S. Irani and the
other by A. S. Irani, that the appellant filed the present writ petition in the
High Court of Bombay challenging the decision of the 1st respondent to
accept the tender of the 4th respondents. Now, it appears from the record
that the appellant was at the material time conducting a restaurant called
Royal Restaurant and Store which was owned in partnership by three
persons, namely, J. K. Irani, K. M. Irani and G. S. Irani. G. S. Irani is the
brother of A. S. Irani and he was managing and looking after the restaurant
of A. S. Irani at the airport. It would, therefore, be a fair inference to make
that the appellant was well connected with A. S. Irani and from the manner
in which proceedings with a view to thwarting the attempt of the 4th
respondents to obtain the benefit of their contract, have been adopted one
after the other in different names, it does appear that the appellant has filed
the writ petition at the instance of A. S. Irani with a view to helping him to
obtain the contract for the restaurant and the snack bars. It is difficult to
understand why the appellant should have waited until 8th November,
1977 to file the writ petition when the tender of the 4th respondents was
accepted as far hack as 19th April, 1977. The explanation given by the
appellant is that he was not aware of the acceptance of the tender of the 4th
respondents but that is a rather naive explanation which cannot be easily
accepted It is not possible to believe that the appellant who was so well
connected with A. S. Irani and G. S. Irani did not know that A. S. Irani had
failed to obtain the contract for running the restaurant and the snack bars
and that this contract had been awarded to the 4th respondents as a result
of which A. S. Irani was being pressed to close down his restaurant and
snack bars. We have grave doubts whether this writ petition was
commenced by the appellant bona fide with a view to protecting his own
interest. Moreover, the writ petition was filed by the appellant more than
five months after the acceptance of the tender of the 4th respondents and
during this period, the 4th respondents incurred considerable expenditure
aggregating to about Rs. 1,25,000/- in making arrangements for putting up
the restaurant and the snack bars and in fact set up the snack bars and
started running the same. It would now be most inequitous to set aside the
contracts of the 4th respondents at the instance of the appellant. The
position would have been different if the appellant had filed the writ
petition immediately after the acceptance of the tender of the 4th
respondents but the appellant allowed a period of over five months to
elapse during which the 4th respondents altered their position. We are,
therefore, of the view that this is not a fit case in which we should interfere
and grant relief to the appellant in the exercise of our discretion
under Article 136 read with Article 226 of the Constitution.

We accordingly dismiss the appeal and confirm the order of the High
Court rejecting the writ petition. But in the circumstances of the case there
will be no order as to costs throughout.
Appeal dismissed