Madras High Court
The Chairman-Cum-Managing Director, ... vs M/S. Srinivasa Timbers, 7/B3, Yercaud ... on 24 July, 1998
Equivalent citations: 1999(1)CTC436, AIR 1999 MADRAS 111, 1999 (37) ARBI LR 352, (1999) 37 ARBILR 352, (1999) 1 MAD LW 358
ORDER Judgement pronounced by C. Shivappa, J.
1. This writ appeal is directed against the judgment of the learned single Judge dated 7.10.1996 passed in W.P.No. 15281 of 1994. By the order dated 17.8.1994, the appellants herein cancelled the order of confirmation of the highest bid of the respondent/petitioner and returned the Earnest Money Deposit by a crossed cheque drawn on Canara Bank. Pollachi. This order was challenged in the writ petition and sought for a direction to issue work orders on receiving due payments and executing the agreement in respect of lease unit for the disposal of 1240 standing silver oak trees in Valparai-Chinnakallar Division, Range-II/Field 8/plot II.
2. The learned single Judge came to the conclusion on the basis that there was a concluded contract and the policy of the Government cannot certainly affect the concluded rights in favour of the respondent. It has also been observed that the acceptance of the Earnest Money Deposit by the respondent will not in any way deprive the right acquired by it under the order dated 2.6.1994 confirming the sale in its favour. But so far as the payment of the amount by the respondent is concerned, the learned single Judge has opined that the payment has been made just on the next day after the expiry of seven days, that will not normally deny the respondent the fruits of the confirmation of sale and allowed the writ petition as prayed for.
3. The questions for consideration in this writ appeal are: (i) whether the respondent is entitled for the lease of felling the trees in the forest area, on the face of the Government Order dated 11.8.1994, despite the fact that no agreement was entered into in pursuance of the auction sale, when the amount was not deposited within the required time and after accepting the return of the bid amount, and (ii) whether the order dated 17.8.1994 suffers from any legal infirmity?
4. In order to appreciate these questions, few facts with reference to the dates are essential and they are set out hereunder the respondent herein is a firm registered with the Tamil Nadu Tea Plantation Corporation Limited, carrying on business in timber. The appellants herein called for tenders for the disposal of 1240 standing silver oak trees in Valparai Chinnakallar Division. The respondent was the highest tenderer for a sum of Rs.40,57,000. At the time of submission of the tender, the respondent had furnished Earnest Money Deposit to the tune of Rs. 50,000. By an order dated 3.6.1994, it was communicated to the respondent that its tender has been confirmed and the it should remit a sum of Rs. 18, 78, 427 being the one- third sale value, 8% sales tax on full sale value, 15% surcharge on sales tax and 5% income-tax on full sale value. The respondent was also directed to furnish a security deposit of Rs. 6,08,550 in the form of National Savings Deposit. All these amount were directed to be paid within 15 days from the date of receipt of the said order. The respondent received the said order on 8.7.1994. By the order dated 19.7.1994, the respondent sought for three months' time for paying the amounts because of his ill-health. By the order dated 9.8.1994 the respondent was granted only seven days time for payment of the amount. According to the respondent, this correspondence granting seven days time was received only on 16.8.1994. The respondent paid the amount on 17.8.1994. The appellants herein by an order dated 17.8.1994, cancelled the auction sale confirmed in favour of the respondent and returned the Earnest Money Deposit of Rs. 50,000 to the respondent, which was received and acknowledged by the respondent.
5. The appellants filed the statement of objections, inter alia contending that averments in paragraph 4 of the affidavit are deliberate distortion of facts. The appellant No.2 after receipt of the confirmation order in Proceedings No.S3/8680/94, dated 2.6.1994 from the appellant No.1 promptly communicated the confirmation of the contract vide proceedings No. 624/93 (3) dated 3.6.1994. The confirmation order was despatched on 6.6.1994 as per postal receipt No. 5852 of 6.6.1994. The postal communication was sent by registered post with acknowledgment due and was received by the respondent after a delay of 32 days on 8.7.1994. The normal postal practice is that any registered letter will be delivered within 7 days, failing which the letter is returned to the sender with appropriate endorsements. The appellants are bringing this fact to the notice of this Court to demonstrate dilatory tactics adopted by the respondent in receiving the confirmation order since he did not have the requisite financial backing to meet the requirements of the order. Hence, the attempt of the respondent seeking three months' time to fulfil the requirements stipulated in the order dated 3.6.1994 was rejected by the appellant No.1 and the respondent was directed to comply with the direction within 7 days. The appellants had given the respondent a chance to execute the agreement, despite he had committed default the communication of the appellants dated 9.8.1994 giving the respondent seven days' time for executing the agreement was received by the respondent on 16.8.1994. The postal acknowledgment No. 4647 dated 10.8.1994 contains lot of erasures and corrections, creating doubts about the bona fides of the respondent in his claim that he received the communication from the appellant No.1 on 16.8.1994. It is the specific case of the appellants that the respondent by adopting unethical methods received the confirmation order dated 3.6.1994, after a delay of 32 days and thereafter requesting for a further extension of time by three months, is estopped from demanding the awarding of the contract as a matter of right and this conduct of the respondent does not warrant any sympathy.
6. The appellants communicated the order of cancellation on 17.8.1994 and the Earnest Money Deposit of Rs. 50,000 was returned to the respondent by a crossed cheque No. 599596 dated 17.8.1994 drawn on the Canara Bank, Pollachi. The respondent acknowledged the demand draft and fixed deposit receipts on 23.8.1994 and the contention that he received the amount under protest is denied.
7. At paragraph 11 of the counter, the appellants have stated that the Government of Tamil Nadu by G.O.Ms.No. 197, Environment and Forests Department, dated 11.8.1994, has banned the felling of trees in the erstwhile Cinchona plantations. The appellants being responsible and answerable to the Government of Tamil Nadu, has in accordance with the Government Order, stopped felling of trees in the cinchona plantations in their control. Apart from this policy decision, the respondent having failed to perform his part of the tender requirements, the appellants herein cancelled the order of confirmation and returned the Earnest Money Deposit.
8. The learned counsel for the appellants submitted that (i) there is no concluded contract which creates enforceable right in the absence of complying with the tender conditions No.6 and 7; (ii) delay in deposit of the bid amount disentitles the respondents to enforce the contract; (iii) the G.O.Ms.No.197, Environment and Forests Department, dated 11.8.1994 since binding on the appellants as a policy of the Government, it has to be given precedence, that too, when the contract was not a concluded contract; and (iv) when there is no malice or bad faith, when the decision is based on rational and relevant consideration, when the Government Order dated 11.8.1994 remains unchallenged and the forest area which has been kept intact without resorting to subsequent auction, the order impugned in the writ petition being an administrative decision in public interest is not vitiated.
9. The learned counsel for the respondent Mr. R. Gandhi contended that (i) the order dated 17.8.1994, by which the sale was cancelled was not by a competent authority namely, who confirmed the auction, but by a Divisional Manager, Pollachi, and unsustainable, since no reference is made to order dated 11.8.1994; (ii) the order of the Government dated 11.8.1994 has to be applied prospectively and (iii) the learned single Judge has observed in his Order that he perused the files and insisted for perusal of the files to assess the facts by us.
10. Re. contention No.1: Section 2(h) of the Indian contract Act defines that "an agreement enforceable by law is a contract". A contract to become enforceable must be binding and a valid contract. Where the contract is not concluded and when the requirement is compliance of tender conditions subject to execution of a formal agreement, such a contract is not a concluded contract and cannot be executed or enforced. So long as the contract is not completed and the party fails to discharge his part of the obligation, it is always open to the other party to refuse completion or even cancel the provisional contract. Tender conditions No.6 and 7 read thus:
"6. The successful tenderers shall pay l/3rd sale value minus E.M.D. within 15 days from the date of receipt of confirmation order and execute the agreement within the said time, failing which the unit will be disposed of at the risk and loss of successful tenderer.
7. The period of contract will be as noted in column 3 of the schedule, from the date of execution of the agreement."
Even by an order dated 9.8.1994, it has been stated that the amount due, to be remitted with interest from the date of accrual and a penalty equivalent to 0.5% of the l/3rd sale value within seven days and to execute the agreement, as per Tender Notice Condition No.6.
11. It is in the interest of the public that the question whether a binding contract has been made between the State and a private individual should not be left open to dispute and litigation; and that is why conditions have been imposed and provisions have been made that the contract must be in writing and must on its face show that it is executed for and on behalf of the head of the State and in the manner prescribed. The whole aim and object of the legislature in conferring powers upon the head of the State would be defeated if in the case of a contract which is in form ambiguous, disputes are permitted to be raised whether the contract was intended to be made for and on behalf of the State or on behalf of the person making the contract. This consideration by itself would be sufficient to imply a prohibition against a contract being effectively made otherwise than in the manner prescribed. It is true that in some cases, hardship may result to a person not conversant with the law who enters into a contract in a form other than the one prescribed by law. It also happens that the Government contracts are sometimes made in disregard of the forms prescribed; but that would not in our view be a ground for holding that departure from a provision which is mandatory and at the same time salutary may be permitted. A person who seeks to contract with the Government must be deemed to be fully aware of statutory requirements as to the form in which the contract is to be made. Until contract is entered into as per the conditions and in accordance with law, the proposal does not acquire any right and subsequent refusal to enter into contract or cancellation of highest bid cannot be faulted when edged with public element unless it is discriminatory or arbitrary. It must therefore be held that as the contract was not in the form required, it could not be enforced at the instance of the respondent.
12. In K.P. Chowdhry v. State of Madhya Pradesh, , it has been held thus:
"What was said in these cases with respect to S. 175(3) of the Government of India Act, 1935, applies with equal force to Article 299(1) of the Constitution. Two consequence follow from these decisions. The first is that in view of Article 299(1) there can be no implied contract between the Government and another person, the reason being that if such implied contracts between the Government and another person were allowed, they would in effect make Article 299(1) useless, for then a person who had a contract with Government which was not executed at all in the manner provided in Article 299(1) could get away by saying that an implied contract may be inferred on the facts and circumstances of a particular case. This is of course not to say that if there is a valid contract as envisaged by Article 299(1), there may not be implications arising out of such a contract. The second consequence which follows from these decisions is that if the contract between Government and another person is not in full compliance with Article 299(1), it would be no contract at all and could not be enforced either by the Government or by the other person as a contract. In the present case it is not in dispute that there never was a contract at required by Act.299(l) of the Constitution. Nor can the fact that the appellant bid at the auction and signed the bid-sheet at the close thereof or signed the declaration necessary before he could bid at the auction amount to a contract between him and the Government satisfying all the conditions of Article 299(1). The position therefore is that there was no contract between the appellant and the Government before the bid at the auction, nor was there any contract between him and the Government after the auction was over as required by Article 299(1) of the Constitution. Further in view of the mandatory terms of Article 299(1) no implied contract could be spelled out between the Government and the appellant at the stage of bidding for Article 299 in effect rules out all "implied contracts between Government and another person. The view taken by the High Court that S. 155(b) of the Madhya Pradesh Land Revenue Code which provides for recovery of money as arrears of land revenue would therefore ensure in favour of the Government and enable it to recover the deficiency cannot be sustained. That clause provides for recovery of all moneys falling due to the State Government under any grant, lease or contract and says that they shall be recoverable in the same manner as arrears of land revenue. The High Court was of the view that the word "contract" in this clause includes an implied contract. But if there can be no implied contract between the Government and another person in view of the mandatory provision of Article 299(1) of the Constitution there can be no question of recovery of any money under an implied contract under C1.(b) of S. 155. The view therefore taken by the High Court that this amount could be recovered under S. 155(b) is not correct."
In Mulamchand v. State of Madhya Pradesh, , it has been held that the provisions of Article 299(1) of the Constitution of India are mandatory in character and the contravention of these provisions nullified the contracts and makes them void and the same is based on the ground of public policy- and the formalities cannot be waived or dispensed with. Even if there is a plea regarding estoppel or satisfication, such pleas are impermissible as that would mean in effect the repeal of an important constitutional provision intended for the protection of the general public. In the instant case, the undisputed facts are that there is non-compliance of conditions No.6 and 7, viz., no agreement was executed, instead, there is acceptance of the Earnest Money Deposit returned by the appellant. In this fact situation, there is no concluded contract creating a right which is enforceable in law.
13. Re. contention No.2: The appellant No.2 herein after receipt of the confirmation order communicated the same vide proceedings No. 624/93(3), dated 3.6.1994, and the postal communication was sent by registered post with acknowledgment due and it was received by the respondent herein after a delay of 32 days, i.e., on 8.7.1994. It is the specific case of the appellants that the respondent by adopting unethical methods received the confirmation order dated 3.6.1994, after a delay of 32 days and thereafter requesting for a further extension of time by three months. The request for extension of time was rejected by the appellant No.1 and the respondent was directed to comply with the direction within seven days. The appellants had given the respondent a chance to execute the agreement, despite he had committed default. The communication of the appellants dated 9.8.1994, giving seven days' time for executing the agreement was received by the respondent on 16.8.1994. The postal acknowledgment No.4647 dated 10.8.1994 contains lot of erasures and corrections, creating doubts about the bona fides of the respondent in his claim that he received the communication from the appellant No.1 on 16.8.1994 according to the contention of the appellants. But so far as the payment of the amount by the respondent is concerned, the learned single Judge has opined that it has been made just on the next day after the expiry of seven days conceding delay in payment, but, however, held that it will not normally deny the fruits of the confirmation of sale. A party who fails to comply his part of the obligations in the manner required is disentitled for an enforceable right.
14. Contentions No.3 and 4 can be dealt with together. At para 11 of the counter, the appellants have stated that the Government of Tamil Nadu by G.O.MS.NO. 197, Environment and Forests Department, dated 11.8.1994, has banned the felling of trees in the erstwhile Cinchona plantations. The Government Order reads thus:
ABSTRACT Forest Department - Tamil Nadu Tea Plantation Corporation Limited - Further expansion of plantations in Tamil Nadu Tea plantation Corporation Limited Orders - Issued.
ENVIRONMENT AND FORESTS FR VII DEPARTMENT G.O.Ms.No. 197 Dated: 11.8.1994 Read: Government D.O. Letter No. 25581/FRVII/94-1 dated 10.8.1994. ORDER
The Tamil Nadu Tea Plantation Corporation, Coonoor is undertaking planting and rehabilitation programme in a phased manner and the Corporation now enters the fourth phase of expansion. However, to embark upon this fresh plantation of Tea, existing trees in the areas have to be cut and this move has been widely "resented by the public. The Government have carefully examined the various representations. In order to maintain the ecological balance and protect and preserve the invaluable heritage of the forest, further expansion of tea planting involving felling of trees by Tamil Nadu Tea Plantation Corporation is banned with immediate effect.
By order of the Governor Sd/-
V. Manivannan Secretary to Government.
A copy of the said Government Order was marked to the appellant No. 1 herein and it was only thereafter, i.e., on 17.8.1994, the respondent was informed that the confirmation order issued to them for the sale of 1240 Standing Silver Oak Trees in Chinnakallar Division/Range II/Field 8/Plot II, has been cancelled and returned the Earnest Money Deposit amount to the respondent. The law on this point has been enunciated by the Apex Court in State of Orissa and another v, Radheshyam Meher and others, , wherein it has been held that "in the absence of any rule or regulation to the contrary, the power of the State cannot be abridged on the basis of an individual interest of certain trader, even to the extent of restricting the State's capacity to advance larger public good, and Court should not have interfered with the administrative decision of the Government taking any public interest." In Delhi Science Forum v. Union of India, , the Apex Court has held that "the administrative decisions including decisions relating to awarding of contracts are vested in a statutory authority or a body constituted under an administrative order. Any decision taken by such authority or a body can be questioned primarily on the grounds: (i) decision has been taken in bad faith; (ii) decision is based on irrational or irrelevant considerations; and (iii) decision has been taken without following the prescribed procedure which is imperative in nature. While exercising the power of judicial review even in respect of contracts entered on behalf of the Government or authority, which can be held to be State within meaning of Article 12 of the Constitution, Courts have to address while examining the grievance of any petitioner as to whether the decision has been vitiated on one ground or the other. It is well settled that the onus to demonstrate that such decision has been vitiated because of adopting a procedure not sanctioned by law, or because of bad faith or taking into consideration factors which are irrelevant, is on the person who questions the validity thereof. This onus is not discharged only by raising a doubt in the mind of the Court, but by satisfying the Court that the authority or the body which had been vested with the power to take decision, has adopted a procedure which does not satisfy the test of Article 14 of the Constitution or which is against the provisions of the statute in question or has acted with oblique motive or has failed in its function to examine each claim on its own merit on relevant considerations". In State of Punjab v. Ram Lubhaya Bagga , the Apex Court has held thus:-
"It is normally within the domain of any Court to weigh the pros and cons of the policy or to scrutinise it and test the degree of its beneficial or equitable disposition for the purpose of varying, modifying or annulling it, based on howsoever sound and good reasoning, except where it is arbitrary or violative of any constitutional, statutory or any other provision of law. When Government forms its policy, it is based on a number of circumstances on facts, law including constraints based on its resources. It is also based on expertopinion. It would be dangerous if Court is asked to test the utility, beneficial effect of the policy or its appraisal based on facts set out on affidavits. The Court would dissuade itself from entering into this realm which belong to the executive. It is within this matrix that it is to be seen whether the new policy violates Article 21 when it restricts reimbursement on account of its financial constraints."
When it is a case of policy of the Government, not to grant contract in order to maintain ecological balance, the policy of the Legislature or the Government cannot be tested in a Court of Law and Courts cannot express their opinion as to whether at a particular juncture or under a particular situation, such policy should have been adopted or not. There may be views and opinions which may be shared and believed by citizens, but Court is not the Forum to sort out such views where the Government has approved such policies. How the resources of the State should be used or preserved in a public interest, is a matter which belongs to the domain of the Government. Unless there is an infringement of any constitutional or statutory provision, this Court cannot review and examine as to whether the said policy should have been adopted or not . In the instant case, there is no concluded contract creating an existing right which is enforceable. In such a fact situation, it cannot be said that the appellants have no right to cancel the contract on the policy of the Government. When there has been no allegation of malice or ulterior motive in cancelling the contract in favour of the respondent, the Court has to confine itself to the tests, such as, whether a decision- making authority exceeded its powers, committed an error of law, committed a breach of the rules of natural justice, reached, a decision which no reasonable tribunal would have reached or abused its powers. In the instant case, there is no violation of any of these tests. There is no illegality or irrationality or impropriety in cancelling the confirmation of auction. In a Welfare State, it is the obligation of the State to ensure preservation of one of the natural resources, such as, forests, etc., for ecological balance which is one of the important criteria which is congenial to good health. When the Government forms its policy, it would be dangerous if the Court is asked to test the utility, beneficial effect of the policy or its appraisal based on facts and the Court would dissuade itself from entering into this realm which belongs to the executive.
15. The learned senior counsel Mr. R. Gandhi, appearing for the respondent contended that the order dated 17.8.1994 by which the sale was cancelled was not by a competent authority, who confirmed the auction, but by a Divisional Manager, Pollachi, and, therefore, it is one without jurisdiction. In fact, the order dated 9.8.1994, extending the time was also passed by the Divisional Manager, Pollachi. He is the appellant No.2 in this appeal. He has referred to the communication of the Chairman-cum-Managing Director and he is entitled to take notice of the Government Order when the agreement is not fructified in accordance with the tender conditions. Referring to a judgment in Civil Appeal No. 3963 of 1987, dated 20.11.1997, the Apex court in State of Madhya Pradesh v. Indra Sen Jain, A.I.R. 1998 S.C. 982, has stated that "even though on the face of the order it is not stated that the action is initiated in public interest, it is open to the authority to place material before the Court in support of its contention that the action was taken in public interest. But the order cannot be quashed on the ground that the order does not mention on the face of it that it is in public interest". Therefore, the view taken by the appellants in not conferring the contract, consequently rejecting the highest bid cannot be faulted.
16. It is also the case of the respondent that the order is prospective in nature and relied on a decision of the Apex Court in Arjan Singh v. State of Punjab, . The said case has no application because the Government Order came into existence before the execution of the agreement and under Condition No.7, the contract has to come into force only after the execution of the agreement.
17. The learned counsel for the respondent requested for perusal of files to assess the facts. The operation of balancing the public interest against the interest of a litigant may or may not require the inspection of a document. There will be no need for inspection where the preponderance is clear one way or the other. When the Government Order discloses a policy decision, that too, when the party has not complied with the conditions and when there is not enforceable contract, it is not necessary to go into the files to assess the facts. Therefore, we see no merit in any of the contentions urged by the learned counsel for the respondent herein, whereas, we find that the contentions urged by the learned counsel for the appellants are well found. The view of the learned single judge that there was a concluded contract, policy of the Government cannot certainly affect the concluded rights, that the acceptance of the Earnest Money Deposit by the respondent will not in any way deprive the right acquired under order dated 2.6.1994, confirming the sale in its favour, is legally unsustainable. In fact, the findings are opposed to terms and conditions of auction. In the absence of a valid agreement as contemplated in law, there cannot be an enforceable right. Having accepted the return of Earnest Money Deposit without protest disentitles the bidder to contend existence of a valid contract and the power of the State cannot be abridged on the basis of the individual interest, when the Government Order is intended to advance larger public good as a matter of public policy. The learned single Judge has failed to appreciate that the policy decision of the Government dated 11.8.1994 indicates the plan to be worked out preventing felling of trees. This aspect was not noticed in reaching the conclusion, upholding the confirmation of sale. In fact, in the absence of a valid agreement creating a right enforceable in law, the learned single Judge should not have gone into the question of contractual obligation in a writ jurisdiction under Art. 226 of the Constitution. Even otherwise, not noticed the consequence of the chronological events and the non-compliance of the auction conditions. Therefore, the findings are liable to be set aside.
18. In the result, the appeal is allowed. The impugned order of the learned single Judge is set aside and the writ petition is dismissed. Parties to bear their own costs. Consequently, the connected Miscellaneous petition is closed.