Corporate Law Case Brief – Ramana Dayaram Shetty v. International Airports Authority of India

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Facts:

  • The International Airport Authority of India invited tenders by a public notice for putting up and running a second class restaurant and two snack bars at the International Airport, Bombay.
  • THE NOTICE STATED IN:

PARAGRAPH (1): Tenders 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): 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 that were received, only the tender of the 4th respondents was complete and had offered the highest amount as license fee. All the other tenders were rejected because they were incomplete.

  • The conditions of paragraph (1) of the tender notice were not satisfied by the fourth respondent. He was therefore called upon by the authorities for production of documentary evidence.
  • The fourth respondent reiterated that it 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.

Arguments of the Appellant:

The Airport 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.

Arguments of the Respondent:

  1. 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 hotelier.
  2. The notice setting out the conditions of eligibility having had no statutory force.
  3. The 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:

  • Once the norms and standards are laid down by any executive authority he cannot go back from the standards established. It is the very essence of the rule of administrative law which was taken from the enunciation of Mr. Justice Frankfurter in Viteralli v. Seton where the learned judge held that “an executive agency must be rigorously held to the standards by which it professes its action to be judged”. This principle was later adopted by Supreme court in S. Ahluwalia v. Punjab and by Mathew, J. in Sukhdev v. Bhagatram.
  • Every action of the executive government must be informed with reason and should be free from arbitrariness.
  • Judgment of Mathew, J. in Punnan Thomas v. State of Kerala where it was held that

a government cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it will deal”.

  • Judgment of Ray, J. in Erusian Equipment and Chemicals Ltd. v. State of West Bengal where it was held

when the government is dealing with the public, whether by way of giving jobs or entering into a contract, or granting license or quotas or other forms of largesse, it cannot act arbitrarily at its sweet will but it has to follow according to the norms and standards which is not arbitrary, irrational or irrelevant. The power and discretion of the government in awarding jobs, granting licenses, quotas, etc. must be in conformity with the rational, relevant and non-discriminatory standards or norms, and if the government departs any time its action is liable to be struck down unless it is proved that the action of government is based on some valid principle which is not irrational, unreasonable and discriminatory.

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