Constitutional Law

Ramana Dayaram Shetty v. International Airport Authority of India

AIR 1979 SC 1628; (1979) 3 SCC 489

Citation: AIR 1979 SC 1628; (1979) 3 SCC 489
Court: Supreme Court of India
Date: 4 May 1979
Bench: P.N. Bhagwati; V.D. Tulzapurkar; R.S. Pathak

Facts

The International Airport Authority of India invited tenders for operating a restaurant and snack bars at Bombay Airport.
The tender notice required applicants to be registered second-class hoteliers with at least five years’ experience.
The contract was awarded to the fourth respondent, who did not satisfy this eligibility condition.
Ramana Dayaram Shetty had not submitted a tender because he did not possess the required hotel experience.
After learning that the Authority had accepted an ineligible tenderer, he challenged the award.
He argued that had he known the condition would be ignored, he could also have submitted a bid.
The Authority claimed that:
the eligibility requirement was not essential;
it could accept any suitable offer; and
its contractual decisions were not subject to Article 14 in the same manner as legislation.

Issue

Whether the International Airport Authority was “State” under Article 12.
Whether Article 14 governed the award of government contracts and public largesse.
Whether accepting a tender from an ineligible bidder while excluding others was arbitrary and discriminatory.
Whether the contract should nevertheless be cancelled.

Rule

A corporation may be an instrumentality or agency of government and therefore “State” under Article 12.
Relevant indicators include:
government ownership of capital;
extensive financial assistance;
deep and pervasive governmental control;
public importance of the functions;
monopoly status; and
transfer of a government department to the corporation.
The State cannot act arbitrarily when distributing contracts, licences, benefits, or other forms of public largesse.
An authority must follow the standards it has announced.
Departure from an eligibility condition is lawful only when supported by a rational and non-discriminatory basis applicable equally to all.

Application

The Court examined the Authority’s statutory structure and found a close governmental connection.
Its members were appointed by the Central Government.
Its entire share capital was provided by government.
The Central Government could issue binding policy directions.
Its accounts and reports were placed before Parliament.
Functions earlier performed by a government department had been transferred to the Authority.
It was therefore an instrumentality of government and subject to Article 14.
The Court then rejected the argument that government enjoys the same freedom as a private individual while awarding contracts.
A private person may ordinarily choose with whom to contract for personal reasons.
A public authority, however, exercises power and distributes State-controlled opportunities.
It must therefore act fairly, rationally and according to relevant standards.
The experience condition in the tender notice had excluded persons such as the appellant.
Once the Authority announced that only experienced registered hoteliers were eligible, other persons were entitled to believe that submitting a tender without that qualification would be useless.
The Authority could not secretly relax the condition only for the successful bidder.
Doing so gave that bidder a special advantage while denying equal opportunity to everyone similarly placed.
The discrimination was not cured merely because Shetty himself lacked the qualification and had not tendered.
His failure to tender was a direct result of the eligibility condition published by the Authority.
The award was therefore arbitrary and contrary to Article 14.
Nevertheless, the Court considered the conduct of the appellant and the practical consequences of granting relief.
He approached the Court after considerable delay.
The successful contractor had already invested substantial money and operated the establishment for several months.
The Court also expressed doubt about the appellant’s bona fides.
Constitutional illegality was established, but cancellation was refused as a matter of judicial discretion.

Conclusion

The International Airport Authority was an instrumentality of government and “State” under Article 12.
State contracts and tenders are subject to Article 14.
The Authority acted unlawfully by accepting a bidder who did not fulfil the published eligibility requirement.
Its decision denied equal opportunity to other potential applicants.
Despite finding the award unconstitutional, the Supreme Court refused to cancel the contract because of delay, altered circumstances and the successful bidder’s substantial expenditure.