Andhra HC (Pre-Telangana)
Mekala Yadaiah vs A.P. State Warehousing Corporation, ... on 11 March, 2002
Equivalent citations: 2002(3)ALD380
ORDER A. Gopal Reddy, J.
1. In this writ petition, the petitioner challenges the action of the first respondent in entrusting the handling and transport work (H&T work) in respect of godowns situated at Anishetty Duppalapalli village, Nalgonda otherwise than by issuing tender notification as arbitrary, illegal and violative of rights guaranteed under Constitution and for a consequential direction to the respondents to issue tender notice for awarding contract of H&T work at the above godowns.
2. The genesis of the lis: To overcome the problem of acute space shortage in the State for procurement, maintenance, storage and preservation of food grains, FCI offered minimum guarantee of 7 years occupancy for construction of 15 lakhs tons capacity of godowns to the first respondent, so that it can formulate a scheme for making available sufficient number of godowns at various places in AndhraPradesh. In turn the State Warehousing Corporation evaluated a scheme in consultation with FCI & State Government to encourage private investors/partnership firms to construct and make available sufficient number of godowns to give as many services to private sector as possible. The broad aspect of the scheme is to see the investors have to construct godowns strictly following the FCI specifications at the identified places at their own costs and make them available to R1 within time frame because there is large scale demonstration by ryots for procurement of bumper crops by FCI at remunerative price. As an incentive to the private investors, the corporation guaranteed 7 years occupancy at a rent of Rs. 2/- per sq. feet per month. The Marketing Department in addition to FCI was giving an incentive for quick completion starting at Rs. 1/- per ton from 65 days and thereafter at Rs. 1/ per day to 115 days. The above incentives under the scheme are given by FCI Marketing Division and NABARD. To minimize the expenditure in construction and also for its maintenance, the private investors were made responsible to keep the godowns fit for storage during the period it is with the corporation and they are responsible for annual or casual repairs considered by the Corporation for the proper maintenance and storage of stocks. In order to create a better package, return and control over assets and also to attract more number of people for constructing the godowns, it was decided to award H & T work contract by nomination to the private investors who offered their godowns with sole intention to encourage public-private partnership in participation and storage of food grains. The scheme was notified by the first respondent on 17-3-2001 inviting offers from private parties for construction of godowns with a capacity of 15 lakh M. Tons under 7 years occupancy guarantee for storage of food grains in several places identified in this regard in the State of Andhra Pradesh including Nalgonda District. In response to the above notification, M/s. Sri Ramakrishna Storages and some others offered their bids which was accepted and was awarded the tender of constructing godowns in Nalgonda center by nomination by duly executing agreement on 24-5-2001. On the basis of the above agreement, M/s. Sri Ramakrishna Storages constructed six godowns with a capacity of 5000 M. Tons each by investing an expenditure of about 4 1/2 crores in the land belonging to them and delivered possession of 5 godowns on 6-8-2001 within sixty days and the remaining godown was given possession on 13-9-2001. As per the package of construction, preservation, maintenance, storage, H&T work was awarded to the investor at a discount of 5% on the existing rates. Questioning the award of H & T work at the above godowns in favour of M/s. Sri Ramakrishna Storages, the present writ petition has been filed without impleading the firm as a party respondent to the writ petition.
3. The partner of M/s. Sri Ramakrishna Storages filed WPMP No. 3309 of 2002 to implead himself as party respondent No. 4 to the writ petition and WVMP.
4. Precisely, it is pleaded by the writ petitioner that he was awarded H&T contract at State Warehousing Corporation (SWC) at Nalgonda for a period of 2 years with effect from 23-6-2001 and he is carrying on the said work with 200 workers. The godowns obtained by SWC are within a radius of 8 KMs from the railway goods shed where he was awarded H&T work. He made a representation expressing his readiness to undertake H&T work at the above godowns taken from private persons/institutions on lease. Andhra Pradesh State Warehousing Corporation being a State Government undertaking entrusted the work of H&T without calling tenders is illegal, arbitrary and violative of Articles 299, 14, 19 (1)(g) of the Constitution and against the well settled principles of law laid down by the Supreme Court and various High Courts.
5. In the counter-affidavit filed by the respondents 1 to 3 and contesting respondent No. 4 has been impleaded, it is inter alia stated that under the new policy/scheme envisaged by State Government and FCI, the first respondent in order to overcome the storage facilities and to encourage private investors who will construct godowns in then own land with their own capital and to overcome the administrative delays in execution of the said projects, tenders were invited from private entrepreneurs for constructing and making available such godowns within the time frame by offering 7 years guaranteed occupancy. To encourage the private investors to invest huge sums, as a matter of policy, it was decided to award H&T contract to the said private investors at the respective godowns constructed by them. It is also agreed that the private investors shall maintain and preserve the food grains during the said period at their own costs. In order to minimize the expenditure for up keep maintenance, it was decided to award H&T work to the respondent No. 4, who has been now impleaded, who has invested 4 1/2 crores for the construction of above godowns and handed over the same within 60 days. The respondent No. 4 was required to invest a sum of Rs. 60 lakhs to provide the necessary infrastructure for providing storage facilities, namely, dunnage and wooden crates etc., and he had already invested a sum of Rs. 30 lakhs for the said purpose. In view of the stay granted by this, the fourth respondent is suffering huge loss. The entire work was awarded as per policy decision undertaken by the first respondent in consultation with FCI and the State Government to encourage private entrepreneurs in participation of food grains storage. Awarding H&T contract is an incentive to encourage private investors. Neither there is any illegality nor arbitrariness in awarding the said work. The writ petitioner will not have any vested right to claim the said work and prayed for dismissal of the writ petition.
6. Sri A. Anantha Reddy, learned Counsel for the petitioner contended that in the absence of any stipulation in the tender notice for awarding H&T work on nomination basis at the time to inviting tenders for construction of godowns, the first respondent is not justified in awarding H&T contract work to the individuals who constructed the respective godowns. Once the godowns were constructed and handed over to the first respondent-Corporation, any contract with regard to H&T work shall be only by way of inviting tenders but not by way of nomination which is contrary to the well established principles of law by placing reliance on the judgments in Ramana Dayaram Shetty v. The International Airport Authority of India and Sterling Computers Limited v. M&N Publications Limited, When the individuals investors who constructed godowns were given 7 years occupancy, no further concession can be given in their favour.
7. On the other hand, Sri V. Venkataramanaiah, learned senior Counsel appearing for the respondent No. 4, in whose favour the contract was awarded, submitted that the respondent-State Warehousing Corporation as a policy matter evolved a scheme for construction of 15 Metric Tons capacity godowns in the entire State of Andhra Pradesh in consultation with FCI and the State Government and in pursuance of the said policy to encourage private investors, incentives were given, which cannot be a subject-matter of judicial review. Once providing storage facilities is an important sector of economy and in order to maintain and preservation of food grains and to attract more number of private investors, 7 years occupancy was assured and the responsibility of maintenance and preservation etc., during the said period will be on the private investors, which itself will minimize the maintenance charges of the State Warehousing Corporation including supervisory and managerial expenditure. In order to lure the private investors for the said purpose, it was decided to award H & T work as an incentive for preservation and maintenance, which cannot be termed as arbitrary or illegal. Once the decision is not arbitrary or capricious and is in tune with the object sought to be achieved, the Court cannot interfere with the awarding of such contract even on nomination basis. In support of his contention, he placed reliance on para 8 of the judgment in Ramana Dayaram Shetty (supra).
8. He also invited the attention of this Court to the Clause 8 of the agreement made on 24-5-2001 which dearly envisages the responsibility on the private investors to keep the godowns fit for storage during the period it is with the Corporation and they shall also responsible for annual or casual repairs considered necessary by the Corporation for proper maintenance and storage of stocks. He also invited to the various correspondence between the State Warehousing Corporation and Food Corporation of India to show that private investors will not come forward to construct such godowns unless certain concessions are given.
9. While adopting the arguments of the learned senior Counsel for the fourth respondent, the learned Standing Counsel for the respondents 1 to 3 submitted that a scheme formulated by State Warehousing Corporation in consultation with FCI and State Government was the subject-matter of discussion in the Assembly under Rule 304 and after elaborate debate, the scheme was duly supported by all the leaders on the floor of Assembly and after that the SWC entered into agreements with the private investors for construction of such godowns. If the H&T work is not awarded to the private investors who constructed the godowns, the State Warehousing Corporations would be exposed to damages in the event private investors move the Court under the agreement. The entire policy was transparent: therefore, the same cannot be a subject-matter of judicial review by this Court.
10. In Ramana Dayaram Shetty's case (supra), on which much reliance was placed by either side, the Supreme Court while considering the award of contract for running a Second Class Restaurant in favour of a Hotelier who do not satisfy the tender conditions observed as under:
"Now, obviously where a corporation is an instrumentality or agency of Government, it would, in the exercise of its power or discretion, be subject to the same constitutional or public law limitations as Government. The rule inhabiting arbitrary action by Government, which we have discussed above must apply equally where such corporation is dealing with the public, whether by way of giving jobs or entering into contracts or otherwise, and it cannot act arbitrarily and enter into relationship with any person it likes at its sweet will, but its action must be in conformity with some principle which meets the test of reason and relevance, (para 20).
........The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is projected by Article 14 and it must characterize every State action, whether it be under authority of law or in exercise of executive power without making of law. The State cannot, therefore act arbitrarily in entering into relationship, contractual or otherwise with a third party, but its action must conform to some standard or norm which is rational and non-discriminatory ....... (para 21)"
11. In Sterling Computers Limited (supra) the Supreme Court while affirming the view expressed in R.D. Shetty's case (supra) observed as under:
".....Once the State of its instrumentalities decides to grant any right or privilege to others, then there is no escape from the rigour of Article 14, the executive does not have an absolute discretion, certain precepts and principles have to be followed, the public interest being the paramount consideration. It has also been pointed out that for securing the public interest one of the methods recognised is to invite tenders affording opportunity to submit offers for consideration is an objective manager. However, here may be cases where in the special facts and circumstances and due to compelling reasons which must stand the test on Article 14 of the Constitution, departure of the aforesaid rule can be made, (para 25) .....Public authorities are essentially different from those of private persons. Even while taking decision in respect of commercial transactions a public authority must be guided by relevant considerations and not by irrelevant ones. If such decision is influenced by extraneous considerations which it ought not to have taken into account, the ultimate decision is bound to be vitiated, even if it is established that such decision had been taken without bias......."
(Para 28)
12. In Kasturi Lal Lakshmi Reddy v. State of J&K the Supreme Court after referring to the judgment in Ramana Dayaram Shetty v. International Airport Authority (supra) and other judgments in awarding of contract held as under:
"........We have referred to these considerations only illustratively, for there may be an infinite variety of considerations which may have to be taken into account by the Government in formulating its policies and it is on a total evaluation of various considerations which have weighed with the Government in taking a particular action, that the Court would have to decide whether the action of the Government is reasonable in public interest. But one basic principle which must guide the Court in arriving at its determination on this question is that there is always a presumption that the Governmental action is reasonable and in public interest and it is for the party challenging its validity to show that it is wanting in reasonableness or is not informed with public interest. This burden is a heavy one and it has to be discharged to the satisfaction of the Court by proper and adequate material. The Court cannot lightly assume that the action taken by the Government is unreasonable or without public interest because, as we said above, there are a large number of policy considerations which must necessarily weigh with the Government in taking action and therefore, the Court would not strike down Governmental action as invalid on this ground, unless it is clearly satisfied that the action is unreasonable or not in public interest. But where it is so satisfied, it would be the plainest duty of the Court under the Constitution to invalidate the Governmental action.......(para 14).
13. In Sachidanand Pandey v. State of West Bengal, AIR 1987 SC 1109, Justice O. Chinnapa Reddy speaking for the Bench held that as regards the question of propriety of private negotiations with an individual or corporation, it should be borne in mind: State -owned or public owned property is not to be dealt with at the absolute discretion of the executive. Certain percepts and principles have to be observed. Public interest is the paramount consideration. Once of the methods of securing the public interest when it is considered necessary to dispose of a property, is to sell the property by public auction or by inviting tenders. Though that is the ordinary rule, it is not an invariable rule. There may be situations where there are compelling reasons necessitating departure from the rule but then the reasons for the departure must be rational and should not be suggestive of discrimination. Appearance of public justice is an important as doing justice. Nothing should be done which gives an appearance of bias, jobbery or nepotism.
14. Similarly in G.B. Mahajan v. Jalgaon Municipal Council, , the Supreme Court while considering the validity of contract entered into by the Municipal Council with the private developer for construction of commercial complex as per the policy decision of the Government held as under:
".......A project, otherwise legal, does not become any the less permissible by reason alone that the local authority, instead of executing the project itself, had entered into an agreement with a developer for its financing and execution. The criticism of the project being 'unconventional' does not add to or advance the legal contention any further. The question is not whether it is unconventional by the standard of the extant practices, but whether there was something in the law rendering it impermissible. There is, no doubt, a degree of public accountability in all Governmental enterprises. But, the present question is one of the extent and scope of judicial review over such matters. With the expansion of the State's presence in the field of trade and commerce and of the range of economic and commercial enterprises of Government and its instrumentalities there is an increasing dimension to Governmental concern for stimulating efficiency. Keeping costs down, improved management methods, prevention of time and cost overturns in projects, balancing of costs against time scales, quality control, cost-benefit ratios etc. In search of these values it might become necessary to adopt appropriate techniques of management of projects with concomitant economic expediencies. These are essentially matters of economic policy which lack adjudicative disposition, unless they violate constitutional or legal limits on power or have demonstrable pejorative environmental implications or amount to clear abuse of power. This again is the judicial recognition of administrator's right to trial and error, as long as both trial and error are bona fide and within the limits of authority.........." (para 22)
15. In the backdrop of the legal position noticed above, it has to be seen in the instant case, as to whether the action of the first respondent was legal, or arbitrary. To justify its action of entering into an agreement of H&T contract by nomination, the first respondent submitted that the entire transaction of awarding H&T work to M/s. Ramakrishna Storages was upon consideration of all facts and circumstances with the object of attracting private investors. It was also stated that the scheme evolved by the Corporation was floated in the month of February and there was a luke warm response from the private investors till June, 2000 as agreements were signed for about 2 lakh Metric Tonnes. Whereas the need of the Corporation was to provide 15 lakh Metric tons. Therefore, the Corporation to encourage private sector has decided to give certain incentives for quick completion of godowns in addition to the incentives given by FCI Marketing Department and NABARD. As the private investors who constructed godowns have to upkeep the maintenance during the occupancy period and to reduce the cost of repairs and maintenance by the Corporation, accordingly, it was decided to award H&T work by nomination by the Project Coordination Committee.
16. The sole point urged by the learned Counsel for the writ petitioner with respect to alleged arbitrariness of respondent No. 1 was that it awarded H&T work without inviting tenders. There cannot be any dispute with the proposition generally that State or its instrumentalities largesse intended to be conferred or resorted to public auction or award should be by way of inviting tenders from all concerned. That would be a sure method of guaranteeing compliance with rigour of Article 14 of the Constitution. It is now accepted position that one of the prime economic policies breezing across the country is to minimize the involvement of State or its Undertakings in the matter of investments, as neither the Central nor the State Governments and its instrumentalities have resources to sustain enterprises and are not able to stand on their own in the new environment of intense competition. The State Governments are starving for financial resources to fulfil its social obligations in priority sectors and to better utilization of the limited resources, it was decided to disinvestment in non-productivity sectors due to paucity of funds. As the State and Central Governments are under an obligation to see farmers will receive remunerative prices by procuring the food grains and to overcome its inability to provide sufficient storage facilities, the first respondent evolved a scheme in consultation with FCI and State Government for making available sufficient number of godowns for undertaking such procurement. Accordingly, it took a policy decision to rope in private investors/ partnership concern for construction of godowns, which is a non productivity centre, by entrusting the same to the private sectors.
Accordingly, it issued fender notification inviting entrepreneurs for construction of such godwons and in return they assured 7 years occupancy with an assured rent. However, to minimize the expenditure in maintaining such godowns including maintenance, supervisory etc., and to undertake necessary repairs during the occupancy period, the first respondent in consultation with FCI and State Government decided that H&T on nomination will go as package along with preservation and maintenance after discussing the same in the Project Co-ordination Committee meeting which was participated by all investors who accepted the proposal.
17. The submission made by the respondent-Corporation when taken into the backdrop of the fact that SWC was not in a position to provide requisite storage facilities as per the needs of FCI and there was over all financial crunch in constructing 15 lakhs Metric Tons capacity godowns throughout the State and making available them to FCI, decision to award H&T contract work as an incentive to the private party who constructed and offered godowns for storage of food grains cannot be faulted with.
18. As regards the merits of the rival offer made by the petitioner to substantiate his plea, awarding of H&T contract to the respondent No. 4 has to be looked at proper perspective of the policy evolved by SWC, from the material placed on record it clearly manifest that SWC had taken note of existing rates and awarded the same at 5% discount, and bona fidely believed that by inviting private investors would in the long run prove to be more beneficial to it.
19. It is well settled proposition of law that in the absence of any mala fides attributed to the Government agencies in awarding a particular work by negotiation resulting in corresponding loss to the Corporation or award of contract was due to extraneous consideration, non-floating of tenders or not holding public auction would not in all cases be deemed to be the result of the exercise of the executive power in an arbitrary manner. Making an exception to the general rule of awarding largesse by public auction or by tenders could be justified if a challenge is made.
20. From conspectus of discussion made and for the reasons stated aforementioned, it is clear that the first respondent corporation discharged the onus to justify its action in awarding H&T contract work to the fourth respondent, which do not suffers from vices of Article 14 of the Constitution.
21. The writ petition is accordingly dismissed. Consequently, interim direction granted by this Court dated 31-1-2002 shall stand vacated. No costs.