Case Note & Summary
The case concerned the validity of a government tender process for leasing a distillery in the Union Territory of Goa, Daman and Diu. The appellant had held the previous lease for the Daman distillery, which expired on January 31, 1973. Before expiry, the Finance Secretary invited tenders on behalf of the President of India for a three-year lease commencing February 1, 1973. Clause 7 of the tender terms provided that the highest tender would ordinarily be accepted, but the Government reserved the right to select any tender or reject all tenders without assigning any reason. Tenders were opened on December 20, 1972: respondent No.1's tender of Rs 3,51,345 was highest, while the appellant's tender of Rs 3,25,000 was second. The Government later negotiated with the appellant, who increased his offer to Rs 3,52,345, and the lease was granted to him. Respondent No.1, after not hearing from the Government, wrote letters and then filed a writ petition under Articles 226 and 227, seeking to quash the lease and direct the Government to accept his tender. He argued that the Government was bound to accept the highest tender, that reasons for rejection were necessary, and that clause 7 was void under Article 14. The State and appellant resisted, contending that no rights arose beyond the contractual terms, acceptance was discretionary, and clause 7 was valid. The Judicial Commissioner held that the private deal with the appellant for Rs 1,000 more than the highest bid was illegal, that clause 7 was ultra vires to the extent it allowed rejection without reasons, and set aside the lease, also relying on the Government's statement that it was prepared to set aside the lease if the court desired. The Government subsequently decided to grant the lease to respondent No.1. The appellant appealed by special leave. The Supreme Court allowed the appeals. It held that the Judicial Commissioner erred in setting aside the lease based only on the Government's willingness, as the appellant was primarily affected and no cogent reason was given. On the substantive question, the Court followed its previous decisions and held that a clause reserving the right to select any tender or reject all tenders without reasons is not violative of Article 14, and the Government is not bound to accept the highest tender. The Court distinguished an auction from an invitation to tender, explaining that an auction is a sale by public competition to the highest bidder, while an invitation to tender is an offer to negotiate or receive offers. Since the process was invitation to tenders and not auction, Article 9 of Legislative Diploma No. 1761 did not apply. No mala fides or arbitrariness was shown. The Court therefore set aside the Judicial Commissioner's order and upheld the grant of lease to the appellant.
Headnote
A) Constitutional Law - Equality and Non-Arbitrariness in Government Contracts - A clause reserving the right of the Government to select any tender or reject all tenders without assigning reasons is not violative of Article 14 - Constitution of India, 1950, Article 14 - The dispute concerned the validity of clause 7 of the tender conditions, which allowed rejection of the highest tender without reasons. The Supreme Court relied on previous decisions to hold that in matters of contracts with the Government, the latter is not bound to accept the tender of the person offering the highest amount, and such a clause is valid. Held that clause 7 did not violate Article 14 (Paras 68-73). B) Contract Law - Invitation to Tender vs Auction - An invitation to tender is an offer to negotiate, not an auction, and is not governed by auction rules - Legislative Diploma No. 1761, Article 9 para 2 - The Court distinguished auction as a sale by public competition to the highest bidder from an invitation to tender, which is a mere attempt to ascertain whether an offer can be obtained; since only sealed tenders were invited and no auction held, Article 9 of the Legislative Diploma did not apply. Held that the lease was not governed by Article 9 (Para 72). C) Judicial Review - Setting Aside of Lease - The Judicial Commissioner erred in cancelling the lease solely on the Government's willingness to set it aside without considering the lessee's rights - Constitution of India, 1950, Articles 226 and 227 - The Judicial Commissioner set aside the lease primarily because the Government was prepared to annul it if the court so directed. The Supreme Court held that the appellant was primarily affected, and absent concurrence of the appellant, this was insufficient to warrant setting aside the lease. Held that the order setting aside the lease was invalid (Para 68). D) Administrative Law - Exercise of Discretion in Acceptance of Tenders - Government discretion in accepting tenders is not arbitrary when exercised under a valid clause, and no reasons are required for rejection - Constitution of India, 1950, Article 14 - The Government rejected the highest tender and negotiated with the second highest bidder for Rs 1,000 more, which was not shown to be mala fide or arbitrary. The Court found no ground for interference. Held that the grant of lease to the appellant was valid (Paras 68-73).
Issue of Consideration
Whether clause 7 reserving right to reject highest tender without reasons violates Article 14; whether government was bound to accept highest tender; whether lease was governed by Article 9 of Legislative Diploma No. 1761 requiring auction; whether Judicial Commissioner erred in setting aside lease
Final Decision
The Supreme Court allowed the appeals, set aside the judgment of the Judicial Commissioner, and upheld the grant of the distillery lease to the appellant. The Court held that clause 7 was not violative of Article 14 and that the Government was not bound to accept the highest tender; no mala fides or arbitrariness was shown.
Law Points
- Government not bound to accept highest tender
- Clause reserving right to select any tender or reject all without reasons not violative of Article 14
- Auction differs from invitation to tender
- Judicial review limited absent mala fide or arbitrariness
- Writ jurisdiction not available for contractual rights
