Full Judgment Text
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PETITIONER:
STERLING COMPUTERS LIMITED ETC.
Vs.
RESPONDENT:
M & N PUBLICATIONS LIMITED AND ORS.
DATE OF JUDGMENT12/01/1993
BENCH:
SINGH N.P. (J)
BENCH:
SINGH N.P. (J)
KASLIWAL, N.M. (J)
CITATION:
1996 AIR 51 1993 SCR (1) 81
1993 SCC (1) 445 JT 1993 (1) 187
1993 SCALE (1)36
ACT:
Constitution of India : Articles 12, 14, 19, 32, 136, 226
and 298.
Government contracts--Judicial review--Court primarily
concerned with infirmity in decision making process--Urgency
of disposal by courts of such matters--Necessity for.
Telephone directories--Publication of--Contract termed
’supplemental contract’ granted--Held amounted to grant of
fresh contract in garb of ’supplemental contract’.
HEADNOTE:
The three appeals arose out of disputes relating to the
publication of telephone directories of MTNL a Government of
India Undertaking. The MTNL introduced a new concept of
"yellow pages’ in telephone directories, and these yellow
pages were to contain advertisement under different
headings. The contractor who was to be awarded the contract
for printing such directories was to collect the revenue
from the advertisements in the yellow pages as well as in
the white pages of the telephone directory, supply the same
free of cost to the for its subscribers, and pay royalty to
the MTNL in connection with printing of such directories.
Tenders for publication of the directories for Delhi and
Bombay were invited. Tender of UIP respondent No. 2 in the
Writ Petition and appellant in one of the appeals (CA.No. 91
of 1993) was accepted, and an agreement dated 14th March,
1987 was executed. UDI, respondent No. 3 to the Writ
Petition and appellant in one of the other appeals (CA No.
90, of 1993) was a subsidiary of UIP.
Under the original agreement UIP was to publish directories
every year for a period of five years from 1987 to 1991 for
Delhi and Bombay separately, pay an amount of Rs. 20.16
crores as royalty to the MTNL, supply the directories free
of cost to subscribers. UIP also furnished a
82 ‘
performance guarantee for a sum of Rs. one crore, and was
also to supply the same number of supplementary directories
which were to be published six months after the publication
of the annual issue, to be published in November/December
every year. UIP was given the exclusive right for
procurement of the advertisements in the yellow pages as
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well as strips, bold the extra entries in the white pages,
the rates to be fixed by the UIP for each issue of the
directory, and such rates to be printed for general
information. It was stipulated that if UIP committed
default or breach of the agreement or failed in the due
performance thereof, the MTNL shall be entitled to recover
from the UIP by way of compensation or liquidated damages
and amount calculated at the rate of Rs. One lakh for every
day or part thereof for the delay beyond the stipulated
date. The MTNL without prejudice to other rights could by
notice in writing determine the contract.
UIP defaulted and committed breach of the agreement inasmuch
as directories for Delhi were published only for the years
1987 and 1988 and for Bombay only for the year 1987. For
the year 1987, Delhi issue was published after a delay of
seven months and Bombay issue after six months, and the
Delhi issue of 1988 was published only in August, 1990, a
delay of two years. There was no publication of the
directories for Delhi for the years 1989, 1990 and 1991, and
in respect of Bombay for the years 1988, 1989, 1990 and
1991.
A supplemental agreement was entered on 26th September, 1991
between UIP, UDI, MTNL and Sterling Computers Limited
appellant in one of the appeals (CA. No. 89 of 1993).
Sterling by this agreement was introduced to carry out the
unexecuted portion of the agreement with UIP. By this
supplemental agreement Sterling was to print and publish 13
main issues of Delhi and Bombay directories within a period
of seven years including the year 1991 on payment of
additional royalty of only Rs. 10 crores to the MTNL over
and above the royalty stipulated in the original agreement
by the UIP.
Under the agreement dated 14th March, 1987 the royalty which
was payable was Rs. 20.16 crores for the period 1987 to
1991, but under the supplemental agreement Sterling was
given the contract to publish 13 main issues of the Delhi
and Bombay directories upto 1997 and 1998, but for the
extended period it had to pay royalty only for an amount of
Rs. 10
83
crores.
A Writ Petition was flied questioning the validity and
legality of the supplemental agreement on different grounds
including the ground of mala fide. It was contended by the
petitioners that under the grab of a supplemental agreement
a fresh contract was awarded to Sterling for a fresh period
from 1991 to 1997 on fresh terms and conditions to publish
the directories every year for Delhi and Bombay without
inviting tenders or affording an opportunity to others, to
submit tenders so that they may be also considered for award
of the said contract. It was asserted by the petitioners
that in the process of entering into the supplemental agree-
ment the MTNL, which is a public undertaking and a "State’
within the meaning of Article 12 of the constitution, had
suffered a loss of more than Rs. 60 crores without any
corresponding benefit accruing to the MTNL or to the public
in general.
MTNL contested the writ petition, contending that the
supplemental agreement was a result of a bona fide
commercial decision free from any bias or malice, that the
original contract for the years 1987 to 1991 had been
awarded to UIP after inviting tenders, but UIP having gone
bankrupt, no money could have been realised from it. The
termination of the original contract was no remedy although
repeated contraventions and breaches had been committed by
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the UIP inasmuch as there was no publication of directory
for Bombay for the years 1988, 1989, 1990 and 1991 and for
Delhi for the years 1989, 1990 and 1991. In order to
salvage Rs. 20.16 crores which was payable to the MTNL under
the original agreement dated 14th March, 1987 by the UIP and
which had not been paid, a decision was taken by the MTNL to
enter into a supplemental agreement and to allow the
UIP/UNI/Sterling to publish the thirteen issues of
directories, six main issues for Delhi and seven main issues
for Bombay upto years 1997-98 apart from the supplementary
directories.
The High Court allowed the writ petitions, and came to the
conclusion that the supplemental agreement dated 26th
September, 1991 cannot be held to be an extension of the
original agreement dated 14th March, 1987, and that the
supplemental agreement was tainted with malice the object
being to provide unjust enrichment to UIP/UDI/Sterling.
In the appeals to this Court, it was contended on behalf of
the
84
appellants that the supplemental agreement was entered into
by the MTNL taking into consideration the circumstances then
existing which had been examined at the highest level and as
such a Court should not examine the discretion exercised by
the public authority as a court of appeal because the
decision to enter into the supplemental agreement also
involved a question of policy, and it was pointed out that
the contract had been awarded in the year 1987 to UIP on an
experimental basis on such terms and conditions on which in
past directories had not ever been published, and that the
real experiment was as to how the directories’ could be
published without incurring any cost by MTNL.
On behalf of the Writ Petitioners it was stated that they
were prepared to pay to the MTNL an amount of Rs. 60 crores
for the period 1991 to 1997/1998 the period covered by the
supplemental agreement for which the UIP/(JDI/Sterling have
undertaken to pay only Rs. 10 crores as royalty.
Dismissing the appeals, this court
HELD:1. Ile publication of directories by the MTNL is
not just a commercial venture, the primary object is to
provide service to the people. [92F]
2.The norms and procedures prescribed by Government and
indicated by Courts have to be more strictly followed while
awarding contracts which have along with a commercial
element a public purpose. [92F]
3.The action or the procedure adopted by the authorities
which can be held to be a ’State’ within the meaning of
Article 12 of the Constitution, while awarding contracts in
respect of properties belonging to the state can be judged
and tested in the light of Article 14 of the Constitution.
Raman Davaram Shelly v. 7he International Airport Authority
of India,’ AIR 1979 SC 1628; M/s. Kasturi Lal Lakshmi Reddy
v. The State of Jammu and Kashmir, AIR 1980 SC 1992;
Fertilizer Corporation Kamgar Union (Regd) Sindri v. Union
of India, AIR 1981 SC 344; Ram and Shyam Company v. State of
Haryana, AIR 1985 SC 1147; Haji T.M. Hasan Rawther v. Kerala
Financial Corporation, AIR 1988 SC 157; Mahabir Auto Stores
v. Indian Oil Corporation, AIR 1990 SC 1031 and Kumari
Shrilekha Vidyarthi v. State of U.P., AIR 1991 SC 537,
referred to. [92-H-93-A]
4. Public authorities, at times It Is said must have the
same liberty
85
as they have in framing the policies, even while entering
into contracts because many contracts amount to
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implementation or projection of policies of the Government.
But it cannot be overlooked that unlike policies, contracts
are legally binding commitments and they commit the
authority which may be held to be a State within the meaning
of Article 12 of the Constitution In many cases for years.
That is why the courts have impressed that even in
contractual matters the public authority should not have
unfettered discretion. [91G-H, 92A]
5.In contracts having commercial elements, some more
discretion has to be conceded to the authorities so that
they may enter into contracts with persons, keeping an eye
on the augmentation of the revenue But even in such matters
they have to follow the norms recognised by courts while
dealing with public property. [92B]
6.Under some special circumstances a discretion has to be
conceded to the authorities who have to enter into contract
giving them liberty to assess the overall situation for
purposes of taking a decision its to whom the contract is to
be awarded and at what terms. If the decisions have been
taken in bone fide manner although not strictly following
the norms laid down by the Courts, such decisions are
upheld. [92C]
7.Public authorities are essentially different from those
of private persons. Even while taking decision in
respect of commercial transactions a publicauthority must
be guided by relevant considerations and not by irrelevant
ones. If such decision is influenced by extraneous
considerations which it ought not to have been taken into
account the ultimate decision is bound to be vitiated, even
if it is established that such decision had been taken
without bias. [102H, 103A]
8.While exercising the power of judicial review, in
respect of contracts entered into on behalf of the State,
the Court is concerned primarily as to whether there has
been any infirmity in the ’decision making process’. By way
of judicial review the Court cannot examine the details of
the terms of the contract which have been entered into by
the public bodies or the state. Courts have inherent
limitations on the scope of any such enquiry. But the
Courts can certainly examine whether "decision making
process’ was reasonable, rational, not arbitrary and
violative of Article 14 of the Constitution. [95C-E-F]
86
Chief Constable of the North Wales Police v. Evans, [1982] 3
All ER 141, referred to.
9.In the facts and the circumstances of the instant case,
it has to be held that the MTNL has applied the "irrelevant
considerations’ doctrine while granting a fresh contract for
a period of five years through the supplemental agreement
dated 26th September, 1991, because it had failed to take
into account considerations which were necessarily relevant
ie. following the rule of inviting tenders while granting
the contract for a further period of five years on fresh
terms and conditions and had taken into account irrelevant
considerations. [101H, 102A]
10.Philanthropy is no part of the management of an
undertaking, while dealing with a contractor entrusted with
the execution of a contract.’[102F]
11.The supply of the directories to public in time, was a
public service which was being affected by the liberal
attitude of the MTNL and due to the condonation of delay on
the part of the UIP/UDI. There was no justification on the
part of the MTNL to become benevolent by entering into the
supplemental agreement with no apparent benefit to the
without inviting fresh tenders from intending persons to
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perform the some job for the next five years. [102G]
12.The supplemental agreement is really a fresh agreement
with fresh terms and, conditions which has been entered by
MTNL without inviting any tender for the same. It has been
entered to benefit the parties who are admittedly defaulters
by not publishing directories for Bombay for the years 1988-
1991, and for Delhi for the years 1989-1991 although they
had collected several crores or Rupees for the
advertisements for the directories to be published in the
aforesaid years. [103D-E]
13.It is a matter of common experience that whenever
applications relating to awarding of contracts are
entertained for judicial review of the administrative
action, such applications remain pending for months and in
some cases for years. Because of the interim orders passed
in such applications, the very execution of the contracts,
are kept in abeyance. The cost of different projects keep
on escalating with passage of time apart from the fact that
the completion of the project itself Is deferred. This
process not only affects the public exchequer but even the
public In general
87
who are deprived of availing the facilities under different
projects. As such, it need not be impressed that while
exercising the power of judicial review in connection with
contractual obligations, Courts should be conscious of the
urgency of the disposal of such matters, otherwise the power
which is to be exercised in the interest of the public and
for public good in some cases become counter- productive by
causing injury to the public in general. [106AB]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 89-91 of
1993.
From the Judgment and Order dated 30.9.1992 of the Delhi
High Court in W.P. No. 1872 of 1992.
K Parsaran, Kapil Sibal, L.P. Agarwalla, N.P. Agarwalla,
Anil Agarwalia, Gopal Subramanium, Fazal-ul-Quaidir, P.H.
Parekh, Ms. Nina Gupta and Vineet Kumar for the Appellant.
K.K. Venugopal, P. Chidambaram, Anil P. Diwan, Harish N.
Salve, Vijay Narain, P.P. Tripathi and P.P. Singh for the
Respondents.
R.N. Keshwani for the Intervener.
The following Judgment of the Court was delivered by
N.P. SINGH. J. Leave granted.
Three appeals have been filed against the same judgment of
the High Court by which the Writ Petition filed on behalf of
the petitioners/respondents (hereinafter referred to as "the
writ-petitioners") was allowed. The dispute relates to the
publication of the telephone directories of Mahanagar
Telephone Nigam Limited, a Government of India Undertaking
(hereinafter referred to as "the MTNL").
A new concept of yellow pages in the telephone directories
was introduced by the MTNL/Department of Telecommunications.
The yellow pages were to contain advertisements under
different headings. The contractor who was to be awarded
the contract for printing such directories was to collect
the revenue from the advertisements in the yellow pages as
well as in white pages of the telephone directory. The
contractor was to print the directories and supply the same
free of cost to the MTNL for its
88
subscribers and had to pay royalty to the MTNL in connection
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with printing of such directories.
Tenders for publication of the directories for Delhi and
Bombay were invited. Tender of the United India Periodicals
Pvt. Ltd. (hereinafter referred to as ’the UlP, the 2nd
respondent to the Writ Petition and appellant in one of the
appeals) was accepted and an agreement dated 14th March,
1987 was executed. United Database (India) Pvt. Ltd.
(hereinafter referred to as ’the UDI’, the 3rd respondent to
the Writ Petition and appellant in one of the appeals) is a
subsidiary of UIP. Under the original agreement UIP was to
publish directories every year for a period of five years
from 1987 to 1991 for Delhi and Bombay separately and was to
payan amount of Rs. 20.16 crores as royalty to the MTNL and
to supply the MTNL directories free of cost with reference
to the number of subscribers. UIP also furnished a
performance guarantee for a sum of Rs. one crore. UIP was
also to supply the same number of supplementary directories
which were to be published six months after the publication
of the annual issue. The annual issue of the directory was
to be published in November/December every year. UIP was
given the exclusive right for procurement of the
advertisements in the yellow pages as well as strips, bold
and extra entries in the white pages. The rates of such
advertisements were to be fixed by the UIP for each issue of
the directory and such rates had to be printed for general
information. It was also stipulated that if UIP committed
any default or breach of the terms and conditions of the
agreement or failed in the due performance thereof within
the time fixed (which was the essence of the contract), the
MTNL shall be entitled to recover from the UIP by way of
compensation or liquidated damages an amount calculated at
the rate of Rs. one lakh for every day or part thereof for
the delay beyond the stipulated date in respect of the item
which was not completed or finished and delivered completely
to the MTNL on the stipulated date as mentioned in the
contract. In view of clause 22 of the agreement, the MTNL
without prejudice to other rights could by notice in writing
determine the contract.
It is an admitted position that UIP defaulted and committed
breach of the terms of the agreement inasmuch as directories
for Delhi were published only for the years 1987 and 1988
and for Bombay only for the year 1987. For the year 1987,
Delhi issue was published after a delay of
89
seven months and that of Bombay after six months. So far
Delhi issue of the directory for the year 1988 is concerned,
it was published only in August, 1990 after a delay of two
years. Under the agreement UIP was to publish directories
every year for Delhi and Bombay separately during the period
of contract from 1987 to 1991. They were also required to
publish supplementary directory each year for Delhi as well
as Bombay. But there was no publication of directories for
Delhi- for the years 1989, 1990 and 1991. Similarly there
was no publication of directories in respect of Bombay for
the years 1988, 1989, 1990 and 1991.
On 26th September, 1991 a supplemental agreement was entered
between UIP, UDI, MTNL and Sterling Computers Ltd.
(hereinafter referred to as "Sterline" appellant in one of
the appeals). Sterling by this agreement was introduced to
carry out the unexecuted portion of the agreement with UIP.
It may be mentioned that by this date the period of the
original agreement dated 14th March, 1987 between the MTNL
and the UIP had expired, still the supplemental agreement
states that "subject to UIP/UDI and Sterling successfully
completing the unexecuted job relating to printing of Bombay
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and Delhi telephone directories within the stipulated time
frame and other stipulations in the agreement MTNL shall
extend the original contract for three more issues each for
Delhi and Bombay, i.e., seven main issues of Bombay and six
main issues of Delhi of the said directories to be brought
out hereafter". The agreement further stipulated that all
terms and conditions contained in the original agreement and
the memorandum of understanding would be the integral part
of the supplemental agreement and all obligations of UIP/UDI
and rights and privileges and powers provided for MTNL
thereunder and under the law shall be applicable and
available to and binding on the parties to the supplemental
agreement as if the same were the part of the supplemental
agreement. It was also said that if there was any
inconsistency or contradictions vis-a-vis the original
agreement, the memorandum of understanding read with
supplemental agreement shall prevail and would have
overriding effect. By the supplemental agreement Sterling
was to print and publish 13 main issues of Delhi and Bombay
directories within a period of seven years including the
year 1991 on payment of additional royalty of only Rs. 10
crores to the MTNL over and above the royalty stipulated in
the original agreement by the UIP. As mentioned above the
original royalty which was payable under the agreement dated
14th March, 1987 was Rs. 20.16 crores for the period 1987 to
1991 but under the supplemental agreement Sterling
90
was given the contract to publish 13 main issues of the
Delhi and Bombay directories upto 1997 and 1998, but for the
extended period it had to pay royalty only for an amount of
Rs. 10 crores. It was left to the UIP/UDI to receive all
revenue earnings on account (cast and future) from the
advertisements and MTNL was to be only informed about the
prices as fixed.
The Writ Petition aforesaid was filed questioning the
validity and legality of the supplemental agreement on
different grounds including on ground of mala fide.
According to the writ-petitioners under the garb of a
supplemental agreement a fresh contract was awarded to
Sterling for a fresh period from 1991 to 1997 on fresh terms
and conditions to publish the directories every year for
Delhi and Bombay without inviting tenders or affording an
opportunity to others, to submit tenders so that they may be
also considered for award of the said contract. It was
asserted by the petitioners that in the process of entering
into the supplemental agreement the MTNL, which is a public
undertaking and a State within the meaning of Article 12 of
the Constitution, has suffered a loss of more than Rs. 60
crores without any corresponding benefit accruing to the
MTNL or to the public in general.
Before the High Court the stand of the MTNL was that the
supplemental agreement was a result of a bonafide commercial
decision free from any bris or malice. The original
contract for years 1987 to 1991 had been awarded to UIP
after inviting tenders but UIP, having gone bankrupt, no
money could have been realised from it. The termination of
original contract was no remedy although repeated
contraventions and breaches had been committed by the UIP
inasmuch as there was no publication of directory for Bombay
for the years 1988, 1989, 1990 and 1991 and for Delhi for
the years 1989, 1990 and 1991. It was stated on behalf of
the MTNL before the High Court that in order to salvage Rs.
20.16 crores which was payable to the MTNL under the
original agreement dated 14th March, 1987 by the UIP and
which had not been paid, a decision was taken by the MTNL to
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enter into a supplemental agreement and to allow the
UIP/UDI/Sterling to publish the thirteen issues of
directories, six main issues for Delhi and seven main issues
for Bombay upto years 1997-98 apart from the supplementary
directories.
The High Court came to the conclusion that supplemental
agreement dated 26th September, 1991 cannot be held to be
the extension of the
91
original agreement dated 14th March, 1987. According to the
High Court the supplemental agreement was tainted with
malice-the object being to provide unjust enrichment to
UIP/UDI/Sterling.
The most interesting part of the controversy is that the
MTNL having fully supported the supplemental agreement
before the High Court has filed an affidavit before this
Court saying that "MTNL has decided to accept the High Court
judgment in so far as that the procedure for the grant of
contract dated 26.9.1991 to the petitioner M/s Sterling
Computers Ltd. Was not in keeping with the requirement of
Article 14 of the Constitution and is not filing any
petition for Special Leave against the said judgment.
However, as far as aspersions are concerned, MTNL does not
accept the same and the same are matters of investigation
and enquiry by an independent Central Agency at present." It
has been further stated that subsequent events have shown
that the Sterling has collected Rs. 19.59 crores
approximately for advertisements in yellow pages without
delivering the goods. They have also uncashed the letter of
credit issued by the ’MTNL’ prematurely. This collection is
apart from the collection of Rs. 14 crores against the
yellow pages advertisements made by UDI and UIP during the
years 1987-1991. It has been further stated that the Board
of ’MTNL’ had in fact even decided to terminate the contract
for lapse in the performance of the obligations under the
26th September, 1991 agreement but as the High Court has
quashed the said supplemental agreement no further step was
considered necessary. Ultimately it has been said in the
said affidavit that MTNL’ has started the process for
inviting fresh public tenders and for that purpose
advertisement has already been issued.
Mr. Venugopal, appearing for the writ-petitioners before us,
stated on behalf of the writ-petitioners that they are
prepared to pay to the ’MTNL’ an amount of Rs. 60 crores for
the period 1991 to 1997/1998 the period covered by the
supplemental agreement for which the UIP/UDI/ Sterling have
undertaken to pay only Rs. 10 crores as royalty.
At times it is said that public authorities must have the
same liberty as they have in framing the policies, even
while entering into contracts because many contracts amount
to implementation or projection of policies of the
Government. But it cannot be overlooked that unlike
policies, contracts are legally binding commitments and they
commit the authority which may be held to be a State within
the meaning of Article 12 of the
92
Constitution in many cases for years. That is why the
Courts have impressed that even in contractual matters the
public authority should not have unfettered discretion. In
contracts having commercial element, some more discretion
has to be conceded to the authorities so that they may enter
into contracts with persons, keeping an eye on the
augmentation of the revenue. But even in such matters they
have to follow the norms recognised by Courts while dealing
with public property. It is not possible for Courts to
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question and adjudicate every decision taken by an
authority, because many of the Government Undertakings which
in due course have acquired the monopolist position in
matters of sale and purchase of products and with so many
ventures in hand, they can come out with a plea that it is
not always possible to act like a quasi judicial authority
while awarding contracts. Under some special circumstances
a discretion has to be conceded to the authorities who have
to enter into contract giving them liberty to assess the
overall situation for purpose of taking a decision as to
whom the contract be awarded and at what terms. If the
decisions have been taken in bona fide manner although not
strictly following the norms laid down by the courts, such
decisions are upheld on the principle laid down by justice
Holmes, that Courts while judging the constitutional
validity of executive decisions must grant certain measure
of freedom of "play in the joints" to the executive.
But in normal course some rules must exist to regulate the
selection of persons for awarding contracts. In such
matters always a defence cannot be entertained that contract
has been awarded without observing the well settled norms
and rules prescribed, on basis of the doctrine of "executive
necessity". The norms and procedures prescribed by
Government and indicated by Courts have to be more strictly
followed while awarding contracts which have along with a
commercial element a public purpose as in the present case.
The publication of directories by the MTNL is not just a
commercial venture; the primary object is to provide service
to the people.
The action or the procedure adopted by the authorities which
can be held to be State within the meaning of Article 12 of
the Constitution, while awarding contracts in respect of
properties belonging to the State can be judged and tested
in the light of Article 14 of the Constitution, is settled
by the judgments of this court in the cases of Raman Dayaram
Shetty v. The International Airport Authority of India, AIR
1979 SC 1628; M/s. Kasturi
93
Lal Lakshmi Reddy v. The State of Jammu & kashmir, AIR 1980
SC 1992; Fertilizer Corporation Kamagar Union (Regd.) Sindri
v. Union of India, AIR 1981 SC 344; Ram and Shyam Company v.
State of Haryana, AIR 1985 SC 1147; Haji T.M. Hasan Rawther
v. Kerala Financial Corporation, AIR 1988 SC 157; Mahabir
Auto Stores v. Indian Oil Corporation, AIR 1990 SC 1031 and
Kumari Shrilekha Vidyarthi v. State of U.P., AIR 1991 SC
537. it has been said by this Court :-
"It must follow as a necessary corollary from
this proposition that the Government cannot
act in a manner which would benefit a private
party at the cost of the State: such an action
would be both unreasonable and contrary to
public interest. The Government, therefore,
cannot for example give a contract or sell or
lease out its property for a consideration
less than the highest that can be obtained for
it, unless of course there are other
considerations which render it reasonable and
in public interest to do so."
[M/s. Kasturi Lal Lakshmi Reddy v. The State
of Jammu & Kashmir.]
There is nothing paradoxical in imposing legal limits on
such authorities by Courts even in contractual matters
because the whole conception of unfettered discretion is
inappropriate to a public authority, who is expected to
exercise such powers only for public good.
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According to the appellants, the supplemental agreement was
entered into by the MTNL taking into consideration the
circumstances then existing which had been examined at the
highest level and as such a Court should not examine the
discretion exercised by the public authority as a court of
appeal because the decision to enter into supplemental
agreement also involved a question of policy. It was
pointed out that the contract had been awarded in the year
1987 to UIP on an experimental basis on such terms and
conditions on which in past directories had not ever been
published. The real experiment was as to how the
directories could be published without incurring any cost by
the MTNL. The publisher being given the right not only to
reimburse itself from the advertisements published in the
yellow and white pages but was also to pay royalty to the
MTNL. It was further pointed out that from the resolutions
of the MTNL. It shall appear that the authorities ’were
concerned that the experiment
94
aforesaid must succeed. With that object in view, another
opportunity was given to UIP/UDI/Sterling through the
supplemental agreement to publish the directories for Delhi
and Bombay. That decision should not be examined by this
Court like a court of appeal.
It is true that by way of judicial review the Court is not
expected to act as a court of appeal while examining an
administrative decision and to record a finding whether such
decision could have been taken otherwise in the facts and
circumstances of the case. In the book Administrative Law,
Prof. Wade has said:
"The doctrine that powers must be exercised
reasonably has to be reconciled with the no
less important doctrine that the court must
not usurp the discretion of the public
authority which parliament appointed to take
the decision. Within the bounds of legal
reasonableness is the area in which the
deciding authority has genuinely free
discretion. If it passes those bounds, it
acts ultra vires. The court must therefore
resist the temptation to draw the bounds
too tightly, merely according to its own
opinion. It must strive to apply an objective
standard which leaves to the deciding
authority the full range of choices which
legislature is presumed to have intended. The
decisions which are extravagant or capricious
cannot be legitimate. But if the decision is
within the confines of reasonableness, it is
no part of the court’s function to look
further into its merits. With the question
whether a particular policy is wise or foolish
the court is not concerned; it can only
interfere if to pursue it is beyond the powers
of the authority."
But in the same book Prof. Wade has also
said:-
"The powers of public authorities are
therefore ’essentially different from those of
private persons. A man making his will may,
subject to any rights of the dependents,
dispose of his property just as he may wish.
He may act out of malice or a spirit of
revenge, but in law this does not affect his
exercise of his power. In the same way a
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private person has an absolute power to allow
whom he likes to use his land, to release a
debtor, or, where the law permits, to evict a
tenant, regardless of his motives. This is
unfettered discretion. But a public
95
authority may do none of these things unless
it acts reasonably and in good faith and upon
lawful and relevant grounds of public
interest.
There are many cases in which a public
authority has been held to have acted from
improper motives or upon irrelevant con-
siderations, or to have failed to take
account. of relevant considerations, so that
its action is ultra vires and void."
While exercising the power of judicial review,
in respect of contracts entered into on behalf
of the State, the Court is concerned primarily
as to whether there has been any infirmity in
the "decision making process". In this
connection reference may be made to the case
of Chief Constable of the North Wales Police
v. Evans, [1982] 3 All ER 141, where it was
said that ’The purpose of judicial review-
"... is to ensure that the individual receives
fair treatment, and not to ensure that the
authority, after according fair treatment,
reaches on a matter which it is authorized or
enjoined by law to decide for itself a
conclusion which is correct in the eyes of the
court."
By way of judicial review the court cannot examine the
details of the terms of the contract which have been entered
into by the public bodies or the state. Courts have
inherent limitations on the scope of any such enquiry. But
at the same time as was said by the House of Lords in the
aforesaid case, Chief Constable of the North Wales Police v.
Evans (supra), the Courts can certainly examine whether
’decision making process" was reasonable, rational not
arbitrary and violative of Article 14 of the Constitution.
If the contract has been entered into without ignoring the
procedure which can be said to be basic in nature and after
an objective consideration of different options available
taking into account the interest of the State and the
public, then Court cannot act as an appellate authority by
substituting its opinion in respect of selection made for
entering into such contract. But, once the procedure
adopted by an authority for purpose of entering into a
contract is held to be against the mandate of Article 14 of
the Constitution, the Courts cannot ignore such action
saying that the authorities concerned must have some
latitude or liberty in contractual matters and any
interference by court amounts to encroachment on the
96
exclusive right of the executive to take such decision.
In support of the stand that it was open to the MTNL to
negotiate with the UIP/UDI/Sterling for purpose of
publication of the directories for Delhi and Bombay without
inviting tenders, reliance was placed on behalf of the
appellants on the judgments of this Court in the cases of
Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir,
[1980] 3 SCR 1338; State of Madhya Pradesh v. Nandlal
Jaiswal, [1987] 1 SCR; Sachidanand Pandey v. State of West
Bengal, [1987] 2 SCC 295 and G.B. Mahajan v. Jalgaon
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Municipal Council, [1991] 3 SCC 91.
From the facts of the case of Kasturi Lal Lakshmi Reddy
(Supra) it shall appear that every year the State used to
auction the blazes in different forests. Most of the
contractors bidding at the auction had their factories
outside Jammu & Kashmir. A decision was taken that from the
year 1979-80 onwards resin extracted from its forests should
not be allowed to be exported outside the territories of the
State and should be utilised only by industries set up
within the State. There were certain forests which were out
of access on account of their distance from the roads and no
contractor could be found for taking tapping contracts even
on the basis of royalty. The Chief Conservator of Forests
and other Forest Officers at a meeting took a decision which
was also confired at a subsequent meeting, between the
Forest Minister, the Forest Secretary and the Chief
Conservator of Forests, that the blazes for such
inaccessible areas should be allotted to some private party.
In view of that decision the second respondent who had
earlier addressed a letter to the State Government offering
to set up a factory for manufacture of resin turpentine oil
and other derivatives in the State and had sought for
allotment of 10,000 metric tonnes of resin annu was
sanctioned the allotment of 11.85 lacs blazes in the
inaccessible areas for a period of 10 years on the terms and
conditions set out in the order. This was challenged in the
aforesaid case. This Court said that whatever be its
activity, the Government is still the Government and is,
subject to restraints inherent in its position and as such
every activity of the Government which has a public element
in it must be reasonable and not arbitrary. However, the
allotment of the contract in favour of the second respondent
was upheld. It was pointed out that the blazes were
situated in inaccessible areas and in spite of the offers
given no bidders were attracted and as such the State had no
option but to allot the said contract on basis of the offer
made by the second respondent.
97
The case of State of Madhya Pradesh v. Nandlal Jaiswal
(supra) related to grant of liquor licences. The procedure
adopted for such grant were being challenged as being
violative of Article 14 of the Constitution. It was said by
this Court:-
"But, while considering the applicability of
Article 14 in such a case, we must bear in
mind that, having regard to the nature of the
trade or business, the Court would be slow to
interfere with the policy laid down by the
State Government for grant of licences for
manufacture and sale of liquor. The Court
would, in view of the inherently pernicious
nature of the cornmodify allow a large measure
of latitude to the State Government in
determining its policy of regulating,
manufacture and sale of liquor would
essentially be a matter of economic policy
where the court would hesitate to intervene
and strike down what the State Government has
done, unless it appears to be plainly
arbitrary, irrational or mala fide."
But even in that case it was said:-
No one can claim as against the state the
right to carry on trade or business in liquor
and the State cannot be compelled to part with
its exclusive right or privilege or
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manufacturing and selling liquor. But when
the State decides to grant such right or
privilege to others the State cannot escape
the rigour of Article 14. It cannot act
arbitrarily or at its sweet will. It must
comply with the equality clause while granting
the exclusive right or privilege of
manufacturing or selling liquor."
The execution of the supplemental agreement cannot be
considered at par with the grant of a liquor licence, which
related to any economic policy.
So far the case of Sachidanand Pandey v. State of West
Bengal (supra) is concerned, in a public interest litigation
the grant of lease in favour of Taj Group of Hotels for
establishment of a Five Star Hotel at Calcutta had been
challenged. It was said:-
"It is to be seen that in the present case no
one has come forward alleging that he has been
discriminated against and his
98
fundamental right to carry on business had
been affected. The very nature of the
construction and establishment of a Five Star
Hotel is indicative of a requirement of
expertise and sound financial position on the
part of those who might offer to construct and
establish them. The decision taken by the All
India Tourism Council was an open decision
well known to everyone in the hotel business.
Yet no one except the ITDC and the Taj Group
of Hotels had come forward with any proposal.
We have it in the record that the Oberoi Group
of Hotels already had a Five Star Hotel in
Calcutta while the Welcome Group of Hotels
were making their own private negotiations and
arrangements for establishing a Five Star
Hotel. In the circumstances, particularly in
the absence of any leading hoteliers coming
forward, the Government of West Bengal was
perfectly justified in entering into
negotiation with the ITDC and the Taj Group of
Hotels instead of inviting tenders."
But at the same time it was said:-
"On a consideration of the relevant cases
cited at the bar the following propositions
may be taken as well established : Stateowned
or public-owned property is not to be dealt
with at the absolute discretion of the
executive. Certain precepts and principles
have to be observed. Public interest is the
paramount consideration. One of the methods
of securing the public interest, when it is
considered necessary to dispose of a property,
is to sell the property by public action or by
inviting tenders. Though that is the ordinar
y
rule, it is not an invariable rule. There may
be situations where there are compelling
reasons necessitating departure from the rule
but then the reasons for the departure must be
rational and should not be suggestive of
discrimination. Appearance of public justice
is as important as doing justice. Nothing
should be done which gives an appearance of
bias, jobbery or nepotism."
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In the case of G.B. Mahajan v. Jalgaon Municipal Council,
(supra), a piece of land had been received by the Town
Municipal Council, Jalgaon, by way of gift. Initially it
had been put to the use Agricultural Produce
99
Market Committee, as a cotton and wholesale fruit and
vegetable market. in terms of the gift, in order to put the
land in a better and more profitable use the Municipal
Council contemplated a project comprising, inter alia,
erection of a commercial complex They also persuaded for
change in the terms of the deed of gift subject to condition
that heirs should be given five shops free of cost in the
commercial complex The scheme contemplated that a developer
would execute the entire project at his own cost and would
make allotments to the shopkeepers to whom the Municipal
Council had given assurances of alternative accommodation at
fixed rates. The developer was also to provide the 17
floors of the administrative building free. of cost to the
municipality. The choice of the respondent No. 6 as
developer for the project aforesaid was questioned. This
Court arrived at the following conclusion:-
"In regard to the allegation that the project
scheme was tailored to suit respondent 6 alone
or that the project as put to tender did not
admit of tenders on fixed comparable
parameters, we find no merit. Sri K.K.
Singhvi submitted that the tender papers were
prepared by reputed architects and the precise
points on which comparative quotations were
invited were specifically incorporated in the
tender papers. The point again is that no
other tenderer expressed any grievance. The
tenders were such that the tenderer could
identify the terms which form the basis of
comparative evaluation. The charge of
arbitrariness cannot be upheld. Tests to be
applied in a given case may be influenced by
the extent to which a decision is supported by
a democratic unanimity‘ which evidences the
decision granted, of course, the power.’
From the facts of the aforesaid case it shall appear that
Municipal Council had invited competitive proposals as to
the ways in which the potentiality of the land could
commercially be exploited and had also competitive plans and
designs and ultimately respondent No. 6 was entrusted with
the execution of the said scheme.
The cases aforesaid on which reliance was placed on behalf
of the appellants, have also reiterated that once the State
decides to grant any right or privilege to others, then
there is no escape from the rigour of Article 14; the
executive does not have an absolute discretion, certain
100
precepts and principles have to be followed, the public
interest being the paramount consideration. It has also
been pointed out that for securing the public interest one
of the methods recognised is to invite tenders affording
opportunity to submit offers for consideration in an
objective manner. However, there may be cases where in the
special facts and circumstances and due to. compelling
reasons which must stand the test on Article 14 of the
Constitution, departure of the aforesaid rule can be made.
This Court while upholding the contracts by negotiation in
the cases referred to above has impressed as to how in the
facts and circumstances of those cases the decisions taken
by the State and the authorities concerned were reasonable,
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rational and in the public interest. The decisions taken in
those cases by the authorities concerned, on judicial
scrutiny were held to be free from bias, discrimination and
under the exigencies of the situation then existing to be
just and proper. On the basis of those judgments it cannot
be urged that this court has left to the option of the
authorities concerned whether to invite tenders or not
according-to their own discretion and to award contracts
ignoring the procedures which are basic in nature, taking
into account factors which are not only irrelevant but
detrimental to the public interest.
From the statements made in the affidavit filed on behalf of
the MTNL before that High Court and from the relevant
minutes of the Board of the MTNL which were produced before
the High Court during the course of the hearing and copies
thereof have also been produced by one of the appellants
before this Court, it appears that the Board in its 28th
meeting held on 28.12.1990 considered the default made by
UIP in not publishing the directories in terms of the
agreement every year. The Board took note of the fact that
UIP had run into financial difficulties and cash flow
problem. The banks who had advanced loans to them have not
yet received back the payments. The paper mills were not
willing to supply paper on credit. The printing presses
were also not prepared to print the directories without
getting advance payments. In this background the Board
considered the three options (1) to invoke the penalty
clause and print the Directory by the MTNL at the risk and
cost of the UIP. (ii) provide the necessary loan secured or
unsecured to print the directories, (iii) to terminate the
contract and award the work to some other contractor. The
matter was again considered in the 29th meeting of the Board
held
101
on 29th March, 1991 where a note was put up saying that if
the contract with the UIP was terminated and a decision was
taken to go in for a fresh tender the following problems may
arise (i) UIP/UDI may put legal obstacles in retendering,
(ii) the response for printing and delivering the
directories free of cost and also paying royalty may be poor
from the parties, considering the failure of the present
experiment and prohibitive increase in the cost of paper and
printing, (iii) the concept of the yellow pages may suffer a
big set back and may make it unattractive to the advertisers
because of the loss of confidence. The Board in its 29th
meeting discussed the aforesaid agenda and took a decision
that MTNL has no option but to grant loan to UIP/UDI to help
them to print out the directories. The Board also felt that
grant of the loan to UIP/UDI was quite risky but the said
distress measure had to be taken to avoid any stalemate and
was in the large interest of the MTNL. The matter was
further discussed in the 31st meeting of the Board held on
6th August, 1991. The agenda note for this meeting after
stating the aforesaid circumstances said that UIP had
approached MTNL once again with a package of proposals in
supersession of their all requests/proposals made earlier,
so that they may be bailed out of their financial problems
and assuring uninterrupted supply of directories for the
revised period of contract. The note recorded that proposal
had also been received from Sterling through UDI to print
and publish the directories of the MTNL with their financial
support. A decision was taken in order to enable the MTNL
to salvage the contract and get the job executed without
further delay and to avoid consequent inconvenience to the
customers, to negotiate on revised terms with
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UIP/UDI/Sterling. There is no dispute that the Board in its
32nd meeting held on 19th August, 1991 approved the new
terms and conditions, and took a decision that an extension
of the contract be given to UIP/UDI and Sterling for
printing the 13 issues of directories for Delhi and Bombay.
On basis of that decision the impugned supplemental
agreement was executed on 26th September, 1991.
In the facts and the circumstances of the present case it
has to be held that the MTNL has applied the "irrelevant
considerations" doctrine while granting a fresh contract for
a period of five years through the supplemental agreement
dated 26th September, 1991, because it has failed to take
into account considerations which were necessarily relevant
i.e.
102
following the rule of inviting tenders while granting the
contract for a further period of five years on fresh terms
and conditions and has taken into account irrelevant
considerations that (i) if the contract is terminated and a
decision is taken for a fresh tender, the UIP/UDI may put
legal obstacles in retendering, (ii) the response for
printing free of cost and also paying the royalty may be
poor (iii) the concept of the yellow pages may suffer a big
set back and may make it unattractive to the advertisers
because of the loss of confidence. MTNL should have been
conscious of the fact that admittedly the UIP/UDI had
miserably failed in performing their part of the contract
for a period of five years, inasmuch as they were required
to publish between the period 1987-1991 one issue of the
main directory every year for Delhi and Bombay apart from
supplementary. Instead of that they published for the year
1987 directories for Delhi and Bombay after a delay of seven
months and six months respectively. The Delhi issue of
directory for the year 1988 was published only in August,
1990. So far Bombay is concerned there was no publication
for the years 1988, 1989, 1990 and 1991. The MTNL also
overlooked the fact that the period of contract had already
expired and as such the MTNL was in error in treating the
supplemental agreement as only an extension of the original
agreement. Learned counsel appearing for the appellants did
not dispute and contest that by the supplemental agreement
the period of contract which had expired in 1991 was
extended upto 1997/1998 for printing the directories for
Delhi and Bombay, and that the terms and conditions were
different. For the period 1991-1997 additional royalty
which had been agreed to be paid by the UDI/UIP/Sterling was
only Rs. 10 crores whereas for the period 1987-1991 it was
Rs. 20.16 crores.
Philanthropy is no part of the management of an undertaking,
while dealing with a contractor entrusted with the execution
of a contract. The supply of the directories to public in
time, was a public service which was being affected by the
liberal attitude of the MTNL and due to the condonation of
delay on the part of the UIP/UDI. There was no
justification on the part of the MTNL to become benevolent
by entering into the supplemental agreement with no apparent
benefit to the MTNL, without inviting fresh tenders from
intending persons to perform the same job for the next five
years. Public authorities are essentially different from
those of private persons. Even while taking decision in
respect of commercial
103
transactions a public authority must be guided by relevant
considerations and not by irrelevant ones. If such decision
is influenced by extraneous considerations which it ought
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not to have taken into account the ultimate decision is
bound to be vitiated, even if it is established that such
decision had been taken without bias. The contract awarded
for the publication of the directories had not only a
commercial object but had a public element at the same time
i.e. to supply the directories to lakhs of subscribers of
telephones in Delhi and Bombay, every year within the
stipulated time free of cost. In such a situation MTNL
could not exercise an unfettered discretion after the
repeated breaches committed by UIP/UDI, by entering into a
supplemental agreement with the sterling for a fresh period
of more than five years on terms which were only beneficial
to UIP/UDI/Sterling with corresponding no benefit to MTNL,
which they have realised only after the High Court went into
the matter in detail in its judgment under appeal.
The supplemental agreement is really a fresh agreement with
fresh terms and conditions which has been entered by MTNL
without inviting any tender for the same. The supplemental
agreement has been entered to benefit the parties who are
admittedly defaulters by not publishing directories for
Bombay for the years 1988, 1989, 1990 and 1991 and for Delhi
for the years 1989, 1990 and 1991 although they had
collected several crores of rupees for the advertisements
for the directories to be published in the aforesaid years.
We fail to understand as to how a fresh contract for a
period upto 1997/1998 was awarded to UIP/UDI/Sterling in the
garb of an agreement for extension of the period of the
original agreement taking into account irrelevant factors as
already enumerated above. If the supplemental agreement has
been executed without following the procedures which are
essential in view of the repeated pronouncements of this
Court and taking into consideration irrelevant factors, then
can it be said that "decision making process" before the
supplemental agreement was entered into was consistent with
the requirement of Article 14 of the Constitution? In such
a situation there is no scope for argument that any
interference by Court shall amount to an intervention like a
court of appeal. Once the process through which the
supplemental agreement was executed is held to be against
the mandate of Article 14 of the’ Constitution, the
supplemental agreement shall be deemed to be avoid.
The appellants also took an objection to the maintainability
of the
104
writ application, on the ground of delay and laches. It was
pointed out that supplemental agreement was entered into on
26th September, 1991 whereas the Writ Petition was filed
before the High Court on 19th May, 1992, although during
this period the petitioners had full knowledge about the
supplemental agreement. According to the petitioners, the
supplemental agreement was kept as a guarded secret by the
MTNL as well as UIP/UDI/Sterling and it is only in April
1992 the petitioners could know some details of the
supplemental agreement. In this connection our attention
was drawn to an advertisement published on 27th September,
1991 saying that official Bombay directory was being
released in December, 1991 and Delhi telephone directory in
January, 1992. That advertisement was given on behalf of
the UDI only. In the body of the advertisement it was
mentioned that UDI and Sterling have made all necessary
arrangements to ensure that every subscriber receives up-to-
date directory in Delhi and Bombay in time. It was urged on
behalf of the writ-petitioners that under the supplemental
agreement it was the Sterling who had been given the right
to publish the directories and as such in normal course the
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advertisement should have been given in the paper on behalf
of the Sterling but only with an ulterior motive the
advertisement was published on behalf of the UDI. Our
attention was also drawn to several communications addressed
by the Department of Telecommunications, Madras, to the dif-
ferent authorities of the MTNL making enquiries as to
whether the Sterling had been entrusted with the printing of
directories for Delhi and Bombay, as tenders for printing
and supply of main telephone directories with yellow pages
on turnkey basis were under consideration at Madras. The
aforesaid queries were made in the month of December, 1991.
The office of the Chief General Manager, MTNL, on 2nd
January replied to the Divisional Engineer, Madras
Telephones, saying "perhaps, MTNL, Corporate Office have
entrusted some job of printing of telephone directories to
M/s Sterling Computers Ltd. In this connection, you are
therefore requested to contact Chairman-cum-Managing
Director, MTNL". A letter dated 30.12.1991 was addressed by
Sterling to the Divisional Engineer, Madras Telphones, in
reply to the query whether they had been entrusted with the
printing and supply of telephone directories, saying "Much
as we would like to provide you a copy of the order of
Mahanagar Telephone Nigam Ltd. we are unable to do so due to
certain circumstances beyond our control." Reference was
made to yet another communication dated 30.12.1991 addressed
105
by MTNL to Deputy General Manager, Madras Telephones, saying
that so far the Sterling Computers were concerned "they have
been allowed a sub-contract by M/s UDI for printing the
directories for Delhi and Bombay", without giving the
details of any such contract. It was pointed out on behalf
of the the writ-petitioners that an affidavit, was filed on
behalf of the Sterling, before the Madras High Court in
connection with another Writ Petition on 19.4.1992, in which
the details of the supplement agreement were disclosed. The
Writ Petition in the Delhi High Court was filed on
19.5.1992. Under the circumstances mentioned above it is
difficult to reject the Writ Petition on the ground of delay
and laches.
As already mentioned above, Mr. Venugopal, the learned
counsel appearing for the writ-petitioners, offered an
amount of Rs. 60 crores on behalf of the writ-petitioners as
royalty to the MTNL for printing the directories for Delhi
and Bombay for the period of the supplemental agreement, if
the said job is entrusted to them on the same terms and
conditions. For that period the UIP/UDI/Sterling have
offered only Rs. 10 crores as additional royalty. This
Court could have considered the desirability of directing
the MTNL to consider the said offer of Rs. 60 crores on
behalf of the writ-petitioners by according to us, if any
such direction is given and on basis of such direction the
job of printing the directories for the period in question
is given to the writ-petitioners, the procedure so adopted
shall suffer from the same vice. The MTNL will enter into
an agreement with the writ-petitioners without inviting
tenders and without offering opportunities to others who may
be interested in the printing of the directories for Delhi
and Bombay. As such while affirming the judgement of the
High Court, we direct that all steps should be taken by MTNL
as early as possible for publishing the directories for
Delhi and Bombay so that public in general should not suffer
any more. The appeals are accordingly dismissed but in the
facts and circumstances of the case there shall be no order
as to costs.
Before we part with the judgment we shall like to strike a
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note of caution. It is a matter of common experience that
whenever applications relating to awarding of contracts are
entertained for judicial review of the administrative
action, such applications remain pending for months and in
some cases for years. Because of the interim orders passed
in such applications, the very execution of the contracts,
are kept in abeyance. The cost
106
of different projects keep on escalating with passage of
time apart from the fact that the completion of the project
itself is deferred. This process not only affects the
public exchequer but even the public in general who are
deprived of availing the facilities under different
projects. As such it need not be impressed that while
exercising the power of judicial review in connection with
contractual obligations. Courts should be conscious of the
urgency of the disposal of such matters, otherwise the power
which is to be exercised in the interest of the public and
for public good in some cases becomes counter-productive by
causing injury to the public in general.
N.V.K. Appeals dismissed.
107