M/S Puravankara Projects Ltd. Vs. M/S Hotel Venus International and Ors.
 INSC 91 (2 February 2007)
Dr. ARIJIT PASAYAT & S.H. KAPADIA
(With Civil Appeal No.7561 of 2005) Dr. ARIJIT PASAYAT, J.
Challenge in these appeals is to the judgment of a Division Bench of the
Kerala High Court holding that the order of cancellation dated 13.4.2005 passed
by respondent No.2 was illegal and that respondent No.1 was entitled to further
time to furnish the bank guarantee after the order granting exemption in terms
of Section 81(3)(b) of the Kerala Land Reforms Act, 1963 (in short the 'Act')
The background facts in a nutshell are as follows:
The State Government transferred 51.96 acres of land in favour of Goshree
Island Development Authority (in short the 'GIDA) a non statutory State
Government Undertaking to enable it to sell it and to use the proceeds for its
developmental schemes. GIDA was authorized to sell the land in public auction
in part or in full. GIDA invited tenders on several occasions but the tenders
were cancelled. Finally, as per Notification dated 10.1.2005 fresh tenders were
invited and pre bid meeting was held on 10.2.2005. Tenders were submitted,
which were opened on 16.2.2005. In the tender documents four options were
indicated. The individual extent of plots mentioned in option IV which was
accepted by the GIDA was less than the ceiling limit contemplated under Section
82(d) of the Act i.e. 15 acres.
Respondent No.1 i.e. M/s Hotel Venus International (hereinafter referred to
as the 'Venus') was the successful bidder in respect of plot Nos. D3, D4 and D5
and its sister concerns were successful in respect of plots B, C3, C4 and C5
under Option IV. Appellant M/s Puravankara Projects Ltd.
was the second highest bidder in respect of plot Nos. D3, D4 and D5
measuring about 8.78 acres each. In the pre bid meeting held on 10.2.2005 one
of the queries raised by one of the participants was as to when exemption
notification under Section 81(3)(b) of the Act would be obtained. The reply by
the Secretary, GIDA forms the foundation of several stands in the present
appeals. The Secretary admittedly replied as follows:
"GIDA had moved for general exemption under Section 81(3)(b) of the
Kerala Land Reforms Act from the Government and the same will be obtained in a
On 28.2.2005 the General Council of GIDA accepted bids of Venus for plot
Nos. D3, D4 and D5 and confirmation letters of the said acceptance were issued
on 1.4.2005 from Cochin addressed to the addressees in terms of Clause 19 of the
tender. The addressees were in Trivandrum (Thiruvananthapuram).
By letter dated 31.3.2005 Venus insisted on an exemption notification being
obtained by GIDA as a pre condition to fulfill the tender terms and conditions,
more particularly relating to furnishing of bank guarantee in terms of Clause
10 of the tender. There is some dispute as to whether the bidders had received
the letters because the postal endorsements indicate that on account of oral
instructions of the owner of Venus, the letters were delivered on 28.4.2005
i.e. much after the normal period of delivery of letters. Appellant knowing
that Venus had not furnished the bank guarantee in terms of Clause 10 of Tender
Terms and Conditions vide its letter dated 19.4.2005 matched the highest offer
in respect of the concerned plots and agreed to pay the entire amount in a lump
sum. When GIDA did not respond to the offer, the appellant moved the High Court
of Kerala by a Writ Petition (C) No.13735 of 2005 which relates to C.A. 7561 of
2005. Prayer in the writ petition inter alia was for a declaration that the
tender of Venus in relation to plot Nos D3, D4 and D5 was to be treated as
cancelled as the requisite bank guarantee was not furnished. A consequential
prayer was made not to extend the time for furnishing bank guarantee and for a
direction to GIDA to consider the appellant's tender which till then was not
Learned Single Judge of the High Court passed an interim order restraining
the alteration of the terms and conditions contained in the tender until
further orders. In the meantime, Venus failed to furnish the bank guarantee
and, therefore, GIDA issued letters of cancellation of the letters of
confirmation issued earlier.
The order of cancellation was challenged by Venus in respect of the
concerned Plots in Writ Petition Nos.
15032/2005, 15048/2005 and 15052/2005. It is to be noted that the first two
related to plot Nos. B, C3, C4 and C5. During the pendency of the writ
petitions, the General Council of GIDA in its meeting on 21.5.2005 ratified the
cancellation and directed forfeiture of the earnest money deposited in respect
of the bids made by Venus in respect of the plots. In the said meeting in
respect of plot Nos. D3, D4 and D5 it was resolved to accept the offers made by
the appellant who had offered the same price as that offered by Venus earlier.
The decision was however made subject to the decision of the High Court in the
pending writ petitions.
The Notification of exemption of land in terms of Section 81(3)(b) of the
Act was issued and published in the official gazette on 20.5.2005. The learned
Single Judge allowed the writ petition filed by Venus essentially holding that
the exemption Notification should have preceded the tender and Venus could not
have been expected to comply with tender conditions without an exemption
Notification. The Writ Petitions filed by the appellants were dismissed. The
writ appeals preferred in respect of the writ petitions were dismissed
affirming the judgment of the learned Single Judge though on different grounds.
It is to be noted that a Division Bench of the High Court had issued notice
and passed interim order to maintain status quo in respect of the concerned
plots by order dated 18.8.2005.
According to the appellants Venus had not come to Court with clean hands.
Both learned Single Judge and the Division Bench proceeded on erroneous
premises as if exemption was a condition precedent to issuance of tender. In
fact all concerned knew that the exemption could be granted later on. The
exemption was necessary only when the total area exceeded the prescribed limit.
As noted above, the successful bidder could be allotted a plot of land which
was less than the ceiling limit. It is submitted that Venus was aware that
exemption notification was not a condition precedent. Therefore, it had by its
letter dated 16.3.2005 addressed to the Chief Minister of State expressed its
willingness for execution of the sale deeds in respect of the plots for which
they had submitted tenders.
Prayer was made in respect of the benefit of stamp duty. In that context
they had clearly stated in the writ petition that instead of waiting for
instalments they had prepared to raise their own resources to save a huge
amount. In other words, attempt of Venus was to save the stamp duty and absence
of the exemption order was not even taken as a ground for permission to execute
the sale deeds. The High Court, it is submitted, had erroneously considered the
terms of the tender and the effect of Section 87 of the Act. The High Court by
its judgment virtually re-wrote the terms of the tender document and in essence
introduced new aspects in the contract.
Section 87 had no application because it relates to cases when a person
either acquires any land after the notified date under Section 83 of the Act by
gift, purchase, mortgage with possession, lease, surrender or any other kind of
transfer inter vivos or by bequest or inheritance or by otherwise. It comes
into existence once there is acquisition of title or interest over the
property. The agreement for sale does not create any interest in the property
and, therefore, the High Court was not justified in applying Section 87 to the
facts of the case.
In response, learned counsel for Venus-respondent No.1 submitted that
Section 81(3)(b) of the Act relates to exemption.
Section 82 specifies the ceiling area and, therefore, no person can hold
land in excess of the ceiling limit. There is a total prohibition. Since the
global tender notification was issued in respect of the entire 51 acres 96 cents
of land, it was obvious that even if a bidder succeeds in the tender for more
than 51 acres of land he cannot own or hold the land for any purpose without
the exemption. Clause 14 of Tender Terms and Conditions provides that allottees
can avail loan from the banks/financial institutions for effecting payment and
for that purpose GIDA was requested to issue NOC. That being so, no any bank or
financial institution will advance any amount without a clear title. In the
absence of the exemption notification legally the successful bidder cannot hold
That actually would affect the generation of finances. In the pre bid
meeting a specific stand was raised as to when the exemption notification is
likely to be issued and the reply of GIDA authorities was that it was to be
obtained shortly. In the absence of the exemption notification the requirement
of furnishing the bank guarantee could not have been insisted upon and both the
learned Single Judge and the Division Bench have therefore rightly held that
the exemption notification was a condition precedent. If a bidder is
constrained to fulfill the conditions regarding payment of bank guarantee
without exemption that would cause great hardship and if there is non
compliance, the inevitable result would be that GIDA would forfeit the EMD for
no fault of the tenderer.
Therefore, the High Court has rightly accepted the contention of Venus that
time for compliance would be computed only from the date of exemption
notification and the receipt of the confirmation thereof. When the parties
entered into an arrangement it is impliedly understood that there should be an
effective transfer of undisputed clear title to the transferee.
It is therefore submitted that the order of learned Single Judge and the
Division Bench do not warrant any interference.
A belated special leave petition has been filed by the State taking the
stand that there has been considerable increase in price and cost of the land
and the appellant should not be allowed to get the land by matching price
offered by Venus. It is to be noted that the order of learned Single Judge was
not challenged either by the State Government or GIDA and this fact has been
noted by the Division Bench.
A few clauses in the Tender Terms and Conditions need to be noted. They are
Clauses 3, 7, 8, 10, 14 and 15 which read as follows:
"The tenderers have to acquaint themselves with regard to the nature
and other conditions of the land before submitting tender. The Tender form
quoting unit rate (rate per cent) enclosed in sealed cover with the
superscription "Tender for goshree Land at Marine Drive, Kochi" shall
reach the Secretary, Goshree Islands Development Authority, Park Avenue,
Kochi-682 011 before 3.00 P.M. on 16th February, 2005. Tender received after
the time fixed will not be considered. The tenders will be opened by the
Secretary, GIDA or an officer authorized by him at 4.00 P.M. on the same day at
District Collector's Camp office, Club Road, Kochi-682 011 in the presence of
the bidders or their authorized representative if present.
xx xx xx
The tenders shall remain open for a
period of 90 days.
The tenders received in each option, will be evaluated by the General
Council and appropriate decision which is most advantageous to GIDA will be
taken. The General Council is free to take any decision, which it deems fit in
the best interest of GIDA.
xx xx xx
Within 10 days of receipt of confirmation letter, the bidder shall
furnish two bank guarantees each covering 20% of the bid amount for a period of
180 days. On failure of compliance, the tender shall stand cancelled without
further notice and the earnest money deposit shall be forfeited. If the tenderer to whom the notice intimating confirmation is sent, fails to respond
within the specified time of 10 days, GIDA will be free to consider any other
tender without any further notice.
Xx xx xx
If after payment of Ist instalment, the allottee desires to avail loan
from banks/financial institutions for paying the 2nd and 3rd instalments of
sale value of the land, GIDA will issue necessary NOC favouring the
Sale deed will be registered and
possession handed over to the purchaser on payment of the full value of the
Sections 81(3)(b) and 87 on which much of the controversy revolves round
read as follows:
may, if they are satisfied that it is necessary to do so in the public interest.
xx xx xx xx
on account of any land being bona
fide required for the purpose of conversion into plantation or for the extension
or preservation of an existing plantation or for any commercial, industrial,
education or charitable purpose, by notification in the Gazette, exempt such
land from the provisions of this Chapter, subject to such restrictions and
conditions as they deem fit to impose:
Provided that the land referred to in clause (b) shall be used for the
purpose for which it is intended within such time as the Government may specify
in that behalf; and where the land is not so used within the time specified,
the exemption shall cease to be in force".
Section 87: Excess land obtained by gift, etc., to be surrendered:-
any person acquires any land after the date notified under section 83 by gift,
purchase, mortgage with possession lease, surrender or any other kind of
transfer intervivos or by bequest or inheritance or otherwise and in
consequence thereof the total extent of land owned or held by such person
exceeds the ceiling area, such excess shall be surrendered to such authority as
may be prescribed.
Explanation I.- Where any land is exempted by or under section 81 and such
exemption is in force on the date notified under section 83, such land shall,
with effect from the date on which it ceases to be exempted, be deemed to be
land acquired after the date notified under section 83.
Explanation II.-. Where, after the date notified under section 83, any class
of land specified in Schedule II has been converted into any other class of
land specified in that Schedule or any land exempt under section 81 from the
provisions of this Chapter is converted into any class of land not so exempt
and in consequence thereof the total extent of land owned or held by a person
exceeds the ceiling area, so much extent of land as is in excess of the ceiling
area, shall be deemed to be land acquired after the said date.
referred to in sub-section (1) shall file a statement containing the particulars
specified in sub- section (1) of section 85A within a period of three months of
the date of the acquisition.
The provisions of sections 85 and 86
shall, so far as may be, apply to the vesting in the Government of the ownership
or possession or both of the lands required to be surrendered under sub-section
It is clear that the Division Bench of the High Court was of the view that
duty is cast on the Government as well as GIDA to inform the prospective
bidders as to whether they propose to place any restriction or condition in
granting exemption under Section 81(3)(b). The High Court also noted that both
the Government and the GIDA were aware of the necessity of issuing a statutory
notification in the gazette under Section 81(3)(b) of the Act failing which the
entire contract would be rendered void and unworkable. Once the Government
refuses exemption the entire contract would be frustrated, as also, the
restrictions or conditions the Government may impose in a given case may not be
acceptable to the parties. Disregard of statutory requirements may render the
contract illegal and when the contract is entered into in violation of these
statutory requirements it would be opposed to public policy and may violate
Section 23 of the Indian Contract Act, 1872 (in short the 'Contract Act').
Therefore, it was held that notification under Section 81(3)(b) should have
come before inviting the global tender so that the bidders were in a position
to know the restrictions and conditions which Government would impose while
granting exemption. That being so, learned Single Judge's view is affirmed by
the Division Bench of the High Court.
Clauses 10 and 15 in the tender document which have been extracted above are
of considerable significance. Clause 10 provides the mode of payment. Clause 13
provides that in case of non payment of 1st instalment, the bank guarantee can
be invoked. Clause 15 provides that the sale deed is to be registered on
payment of the full value of the land.
Section 87 deals with acquisition of title after the notified date. Section
87(1)(a) deals with action to be taken within a period of three months from the
date of acquisition. The bank guarantee was to be furnished within a period of
10 days. The High Court held that the contract was un- enforceable in view of
Section 87 of the Act is not correct. The High Court mis- construed the scope
of Section 87 of the Act. The reason that the bank guarantee was not given is
of no consequence. In fact as rightly submitted by learned counsel for the
appellant, Venus itself being conscious that the exemption notification was not
necessary before furnishing of bank guarantee, requested for immediate
registration of the sale deed. The only reason indicated was that if it is done
before a particular date considerable amount of stamp duty would be saved. At
that stage, GIDA was never even intimated by Venus that it had no money or that
it was awaiting for bank finances or that there was any necessity to obtain
exemption notification. It appears even the stands regarding the availability
of finances are different at different points of time.
In the pre bid meeting also admittedly there was no demand to change the
condition regarding the exemption notification being obtained first. GIDA's
stand was very specific. It never treated the exemption notification to be a
Clause 11 also throws considerable light on the actual intention. The same
when read with Clause 14 makes the position clear that if after payment of
first instalment the allottee desires to avail loan from a bank or financial
institution for paying the second and third instalments of the sale value of
the land, GIDA will issue NOC in favour of bank/financial institution.
Therefore, only after the payment of the first instalment, the question of GIDA
issuing NOC arises, that too when the allottee desires to avail loan for paying
the second and third instalments.
Clause 13 provides for forfeiture in case of non payment of the first
instalment and permits the bank guarantee to be invoked without further notice.
It specifically provides for furnishing of bank guarantee in respect of the
required percentage of the bid amount and permits cancellation of the tender
and forfeiture of the amount deposited.
The High Court also has held that the exemption notification can be treated
as part of implied terms. It is to be noted that the Government itself
permitted GIDA to sell the property initially. Section 23 of the Contract Act
has really no application to the facts of the case. Section 87 as noted above,
deals with acquisition after the date of notification and permits filing of the
statement subsequently in terms of Sub-section (1A) of Section 87. Illegality
is attached to a case where a person continues to hold the land and there is a
requirement of surrender after acquisition.
There is a vital distinction between the administrative and contractual law
It is to be noted that there was no privity of contract between Government
and the bidders. The tender conditions inter alia contained provisions relating
to signing of contract and payment of money. There can be no implied terms so
far as the Government is concerned. Terms can be claimed to be implied by the
parties to the contract. Thus, it was open to the contracting parties to say
that subject to obtaining exemption notification, the contract would be given
effect to. It is not so in the present case.
Government by a contract cannot be compelled to grant permission. The
statutory parameters have to be kept in view.
A condition may be there, as appears to be in present case, to take steps to
obtain permission. An agreement may fail because of absence of permission. Then
it becomes unenforceable.
Certain decisions of this Court are relevant. In W.B. State Electricity
Board v. Patel Engineering Co. Ltd. and Ors. (2001 (2) SCC 451) it was held
that the conditions cannot be changed. The relevant paragraphs are 24, 30 and
31. They read as follows:
"The controversy in this case has arisen at the threshold. It
cannot be disputed that this is an international competitive bidding which
postulates keen competition and high efficiency. The bidders have or should
have assistance of technical experts. The degree of care required in such a
bidding is greater than in ordinary local bids for small works. It is essential
to maintain the sanctity and integrity of process of tender/bid and also award
of a contract. The appellant, Respondents 1 to 4 and Respondents 10 and 11 are
all bound by the ITB which should be complied with scrupulously. In a work of
this nature and magnitude where bidders who fulfil prequalification alone are
invited to bid, adherence to the instructions cannot be given a go-by by
branding it as a pedantic approach, otherwise it will encourage and provide
scope for discrimination, arbitrariness and favouritism which are totally
opposed to the rule of law and our constitutional values. The very purpose of
issuing rules/instructions is to ensure their enforcement lest the rule of law
should be a casualty. Relaxation or waiver of a rule or condition, unless so
provided under the ITB, by the State or its agencies (the appellant) in favour
of one bidder would create justifiable doubts in the minds of other bidders,
would impair the rule of transparency and fairness and provide room for
manipulation to suit the whims of the State agencies in picking and choosing a
bidder for awarding contracts as in the case of distributing bounty or charity.
In our view such approach should always be avoided. Where power to relax or
waive a rule or a condition exists under the rules, it has to be done strictly
in compliance with the rules.
We have, therefore, no hesitation in concluding that adherence to the ITB or
rules is the best principle to be followed, which is also in the best public
Though clause 29 in this case appears to be similarly worded as in the
bid documents in Spina case a close reading of these clauses shows that no
power of waiver is reserved in the case on hand. That apart, the nature of the
error in these two cases is entirely different.
There, the error was apparent $ 400 for $ 4, non-material and waivable by
in the present case the errors pointed out above are not simply arithmetical
and clerical mistake but a deliberate mode of splitting the bid which would
amount to rewriting the entries in the bid document and cannot be treated as
non-material. Therefore, the judgment in Spina case does not help Respondents 1
The submissions that remains to be considered is that as the price bid
of respondents 1 to 4 is lesser by 40 crores and 80 crores than that of
respondents 11 and 10 respectively, public interest demands that the bid of
respondents 1 to 4 should be considered. The Project undertaken by the
appellant is undoubtedly for the benefit of the public. The mode of execution
of the work of the Project should also ensure that the public interest is best
served. Tenders are invited on the basis of competitive bidding for execution
of the work of the Project as it serves dual purposes. On the one hand it
offers a fair opportunity to all those who are interested in competing for the
contract relating to execution of the work and, on the other hand it affords
the appellant a choice to select the best of the competitors on a competitive
price without prejudice to the quality of the work.
Above all, it eliminates favouritism and discrimination in awarding public
works to contractors. The contract is, therefore, awarded normally to the
lowest tenderer which is in public interest. The principle of awarding contract
to the lowest tenderer applies when all things are equal. It is equally in public
interest to adhere to the rules and conditions subject to which bids are
invited. Merely because a bid is the lowest the requirements of compliance with
the rules and conditions cannot be ignored. It is obvious that the bid of
respondents 1 to 4 is the lowest of bids offered.
As the bid documents of respondents 1 to 4 stand without correction there
will be inherent inconsistency between the particulars given in the annexure
and the total bid amount, it (sic they) cannot be directed to be considered
along with the other bids on the sole ground of being the lowest."
In Directorate of Education and Ors. v. Educomp Datamatics Ltd. and Ors.
(2004 (4) SCC 19) it was observed as follows:
"It is well settled now that the courts can scrutinise the award of
the contracts by the Government or its agencies in exercise of their powers of
judicial review to prevent arbitrariness or favouritism. However, there are
inherent limitations in the exercise of the power of judicial review in such
matters. The point as to the extent of judicial review permissible in
contractual matters while inviting bids by issuing tenders has been examined in
depth by this Court in Tata Cellular v. Union of India (1994 (6) SCC 651).
After examining the entire case-law the following principles have been
deduced: (SCC pp. 687-88, para 94) "94. The principles deducible from the
The modern trend points to judicial
restraint in administrative action.
The court does not sit as a court of
appeal but merely reviews the manner in which the decision was made.
The court does not have the expertise
to correct the administrative decision. If a review of the administrative
decision is permitted it will be substituting its own decision, without the
necessary expertise which itself may be fallible.
The terms of the invitation to tender
cannot be open to judicial scrutiny because the invitation to tender is in the
realm of contract.
Normally speaking, the decision to accept the tender or award the contract
is reached by process of negotiations through several tiers.
More often than not, such decisions are made qualitatively by experts.
The Government must have freedom of contract. In other words, a fair
play in the joints is a necessary concomitant for an administrative body
functioning in an administrative sphere or quasi- administrative sphere.
However the decision must not only be tested by the application of Wednesbury
principle of reasonableness (including its other facts pointed out above) but
must be free from arbitrariness not affected by bias or actuated by mala fides.
Quashing decisions may impose heavy
administrative burden on the administration and lead to increased and unbudgeted
In Air India Ltd. v. Cochin International Airport Ltd. (2000 (2) SCC
617), this Court observed: (SCC p. 623, para 7) "The award of a contract,
whether it is by a private party or by a public body or the State, is
essentially a commercial transaction. In arriving at a commercial decision
considerations which are paramount are commercial considerations. The State can
choose its own method to arrive at a decision. It can fix its own terms of
invitation to tender and that is not open to judicial scrutiny. It can enter
into negotiations before finally deciding to accept one of the offers made to
it. Price need not always be the sole criterion for awarding a contract. It is
free to grant any relaxation, for bona fide reasons, if the tender conditions
permit such a relaxation.
It may not accept the offer even though it happens to be the highest or the
lowest. But the State, its corporations, instrumentalities and agencies are
bound to adhere to the norms, standards and procedure laid down by them and
cannot depart from them arbitrarily.
Though that decision is not amenable to judicial review, the court can
examine the decision- making process and interfere if it is found vitiated by
mala fides, unreasonableness and arbitrariness."
This principle was again re-stated by
this Court in Monarch Infrastructure (P) Ltd. v.
Commr, Ulhasnagar Municipal Corpn. (2000 (5) SCC 287) It was held that the
terms and conditions in the tender are prescribed by the Government bearing in
mind the nature of contract and in such matters the authority calling for the
tender is the best judge to prescribe the terms and conditions of the tender.
It is not for the courts to say whether the conditions prescribed in the tender
under consideration were better than the ones prescribed in the earlier tender
In Har Shankar and Ors. v. The Dy. Excise and Taxation Commr. and Ors. (1975
(1) SCC 737) the case of a bid with full knowledge was considered. It was
observed as follows:
"Learned counsel for the respondents raised a preliminary objection
to the maintainability of the writ petitions filed by the appellants to the
grant of reliefs claimed by them. He contends that the appellants who offered
their bids in the auctions did so with knowledge of the terms and conditions
attaching to the auctions and they cannot, by their writ petitions, be
permitted to wriggle out of the contractual obligations arising out of the
acceptance of their bids. This objection is well- founded and must be accepted.
Those interested in running the country liquor vends offered their
voluntarily in the auctions held for granting licences for the sale of country
liquor. The terms and conditions of auctions were announced before the auctions
were held and the bidders participated in the auction without a demur and with
full knowledge of the commitments which the bids involved. The announcement of
conditions governing the auctions were in the nature of an invitation to an
offer to those who were interested in the sale of country liquor. The bids
given in the auctions were offers made by prospective vendors to the
Government. The Government's acceptance of those bids was the acceptance of
willing offers made to it. On such acceptance, the contract between the bidders
and the Government became concluded and a binding agreement came into existence
between them. The successful bidders were then granted licences evidencing the
terms of contract between them and the Government, under which they became
entitled to sell liquor. The licensees exploited the respective licences for a
portion of the period of their currency, presumably in expectation of a profit.
Commercial considerations may have revealed an error of judgment in the initial
assessment of profitability of the adventure but that is a normal incident of
all trading transactions.
Those who contract with open eyes must accept the burdens of the contract
along with its benefits. The powers of Financial Commissioner to grant liquor
licences by auction and to collect licence fees through the medium of auctions
cannot by writ petitions be questioned by those who, had their venture
succeeded, would have relied upon those very powers to found a legal claim,
Reciprocal rights and obligations arising out of contract do not depend for
their enforceability upon whether a contracting party finds it prudent to abide
by the terms of the contract. By such a test no contract could ever have a
The difference between administrative law and contractual law was succinctly
stated in Indian Oil Corporation Ltd. v. Amritsar Gas Service and Ors. (1991
(1) SCC 533). It was noted in paras 9, 10 and 11 as follows:
"The argument advanced by Shri Harish Salve on behalf of the
appellant-Corporation to the validity of the award are these. The first
contention is that the validity of the award has to be tested on the principle
of private law and the law of contracts and not on the touchstone of
constitutional limitations to which the Indian Oil Corporation Ltd., as an
instrumentality of the State may be subject since the suit was based on breach
of contract alone and the arbitrator who proceeded only on that basis to grant
the reliefs. It is urged that for this reason the further questions of public
law do not arise on the facts of the present case. The next contention is that
the relief of restoration of the contract granted by the arbitrator is contrary
to law being against the express prohibition in Sections 14 and 16 of the
Specific Relief Act. It is urged that the contract being admittedly revokable
at the instance of either party in accordance with clause 28 of the agreement,
the only relief which can be granted on the finding of breach of contract by
the appellant-Corporation is damages for the notice period of 30 days and no
more. It was then urged that the reasons given in the award for granting the
relief of restoration of the distributorship are untenable, being contrary to
law. Shri Salve contended that the propositions of law indicated in the award
and applied for granting the reliefs disclose an error of law apparent on the
face of the award. It was also urged that the onus of proving valid termination
of the contract was wrongly placed by the arbitrator on the
appellant-Corporation instead of requiring the plaintiff-respondent 1 to prove
that the termination was invalid. It was also contended that the failure of the
arbitrator to consider and decide the appellant-Corporation's counter-claim
when the whole suit was referred for decision constitute legal misconduct.
In reply, Shri Sehgal on behalf of respondent 1 contended that there is
a presumption of validity of award and the objections not taken specifically
must be ignored. This argument of Shri Sehgal relates to the grievance of the
appellant relating to placing the onus on the appellant-Corporation of proving
validity of the termination. This contention of Shri Sehgal must be upheld
since no such specific ground is taken in the objections of the appellant.
Moreover, there being a clear finding by the arbitrator of breach of contract
by invalid termination, the question of onus is really of no significance.
The other arguments of Shri Sehgal are that the termination of
distributorship casts stigma on the partners of the firm; counter claim of the
appellant-Corporation was rightly not considered since it was not made before
the order of the reference; the reference made being of all disputes in the
suit, the nature of relief to be granted was also within the arbitrator's
jurisdiction; and interest also must be awarded to the respondent.
We may at the outset mention that it is not necessary in the present case
to go into the constitutional limitations of Article 14 of the Constitution to
which the appellant- Corporation as an instrumentality of the State would be
subject particularly in view of the recent decisions of this Court in Dwarkadas
Marfatia and Sons v. Board of Trustees of the Bombay, Mahabir Auto Stores v.
Indian Oil Corporation and Shrilekha Vidyarathi v. State of U.P.. This is on
account of the fact that the suit was based only on breach of contract and
remedies flowing therefrom and it is on this basis alone that the arbitrator
has given his award. Shri Salve is therefore right in contending that the
further questions of public law basis on Article 14 of the Constitution do not
arise for decision in the present case and the matter must be decided strictly
in the realm of private law rights governed by the general law relating to
contracts with reference to the provisions of the Specific Relief Act provided
for non-enforceability of certain types of contracts. It is, therefore, in this
background that we proceed to consider and decide the contentions raised before
In essence, it was held that tender terms are contractual and it is the
privilege of the Government which invites its tenders and Courts did not have
jurisdiction to judge as to how the tender terms would have to be framed.
By observing that there was implied term which is not there in the tender,
and postponing the time by which the bank guarantee has to be furnished, in
essence the High Court directed modification of a vital term of the contract.
In M/s New Bihar Biri Leaves Co. and Ors. v. State of Bihar and Ors. (1981
(1) SCC 537) it was observed at para 48 as follows:
"It is a fundamental principle of general application that if a
person of his own accord, accepts a contract on certain terms and works out the
contract, he cannot be allowed to adhere to and abide by some of the terms of
the contract which proved advantageous to him and repudiate the other terms of
the same contract which might be disadvantageous to him. The maxim is qui approbat non reprobate (one who approbates cannot reprobate). This principle,
though originally borrowed from Scots Law, is now firmly embodied in English
Common Law. According to it, a party to an instrument or transaction cannot
take advantage of one part of a document or transaction and reject the rest.
That is to say, no party can accept and reject the same instrument or
transaction (Per Scrutton, L.J., Verschures Creameries Ltd. v. Hull @
Netherlands Steamship Co. (1921 (2) KB 608;
see Douglas Menzies v. Umphelby (1908 AC 224, 232; see also Stround's
Judicial Dictionary, Vol. I, page 169, 3rd Edn.)"
In Assistant Excise Commissioner and Ors. v. Isaac Peter and Ors. (1994 (4)
SCC 104) this Court highlighted that the concept of administrative law and
fairness should not be mixed up with fair or unfair terms of the contract.
It was stated in no uncertain terms that duty to act fairly which is sought
to be imported into a contract to modify and/or alter its terms and/or to
create an obligation upon the State Government which is not there in the
contract is not covered by any doctrine of fairness or reasonableness. The duty
to act fairly and reasonably is a doctrine developed in administrative law
field to ensure the rule of law and to prevent failure of justice when the
action is administrative in nature.
Just as the principles of natural justice ensure fair decision where
function is quasi-judicial the doctrine of fairness is evolved to ensure fair
action when the function is administrative. But the said principle cannot be
invoked to amend, alter or vary the expressed terms of the contract between the
So far as the principles relating to implied terms are concerned the
position has been stated by Chitty on Contracts, 28th Edn. Chapter 13. They
read as follows:
"A term will not however thus be implied unless the court is satisfied
that both parties would, as reasonable men have agreed to it had it been
suggested to them..The Court will only imply a term if it is one which must
necessarily have been intended by them, and in particular will be reluctant to
make any implications, "where the parties have entered into a carefully
drafted written contract containing detail terms agreed between them"A
term ought not to be implied unless it is in all the circumstances equitable
and reasonable . But this does not mean that a term will be implied merely
because in all the circumstances it would be reasonable to do so or because it
would improve the contract or make its carrying out more convenient. "the
touchstone is always necessity and not merely reasonableness". "A
term will not be implied if it would be inconsistent with the express wording
of the contract".
In Halsbury's Laws of England, 4th Edn, Vol. 9, the expression "implied
terms" reads as follows:
"In practice, logically implied terms and the other three types of
implied terms tend to merge imperceptibly into each other, all the categories
being justified to some extent by reference to the intention of the parties;
and the distinctions between classes of implied terms tend to be based on
convention rather than logic. The conventional distinction which will be
adopted here, are as follows: (1) terms implied by custom; (2) terms implied by
other terms implied by the courts.
The relationship between the parties may be a matter of profound importance in
determining whether a contract contains a term implied under one of these heads.
xx xx xx xx Implication by law- There are many cases where apart from local
custom or usage, the common law has recognized a general custom that certain
terms be incorporated into particular types of contract. In some of these
cases, the rules having been decided by the courts, they have been put into
statutory form; for example the implied terms in sale of goods, conveyances of
interests in land, in contracts of marine insurance or in contractual licences
to enter property. Frequently, such statutorily implied terms are expressed to
give way to a contrary intention; but there are other cases where the terms
implied by statute cannot be excluded by any contrary agreement. Yet a further
step in the process is that where statute law has in a particular field
codified terms implied at common law, the courts may import those statutory
terms into similar transactions by way of analogy. For instance, the
statutorily implied term as to fitness in a sale of goods has been imported by
analogy into contracts for the manufacturer of dentures, repair of a motor car,
the erection of scaffolding, the dyeing of a woman's hair but the courts have
shown themselves much more reluctant to import similar terms as to fitness into
contracts for the sale or lease of interests in land.The conclusion would
appear to be that terms implied by law are not happily described as "implied
terms": they are rather duties which (frequently subject to a contrary
intention) are imposed by the law on the parties to particular types of
contract. In deciding whether to create such duties, the courts tend to look,
not to the intention of the parties, but to consideration of public policy..An
implied warranty, or as it has been called, a covenant in law, as distinguished
from an express contract or express warranty is really founded on the presumed
intention of the parties and upon reason. The implication which the law draws
from what must obviously have been the intention of the parties, it draws with
the object of giving efficacy to the transaction and preventing such failure of
consideration as cannot have been within the contemplation of either side.
In view of what we have stated above, it is not necessary to deal with the
grievance raised by the State Government in its belated Special Leave Petition.
Judged at from any angle the order of the learned Single Judge as affirmed
by the Division Bench cannot be maintained and is set aside.
The appellants had stated their willingness to match the amount offered by
Venus and also to pay interest in terms of the contract. It has been stated
that the whole amount shall be paid and they shall not give any bank guarantee.
Let the amounts offered by Venus be paid by the appellants within a period of
one month from today with interest @12% p.a. from the date of allotment. The
amount, if any deposited by Venus will be refunded with interest @ 9% from the
date of deposit within a period of six weeks.
The appeals are allowed but without
any order as to costs.
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