Shetty'S Construction Company Private ... vs Krishna Bhagya Jala Nigam Limited And ... on 20 September, 2005
7. The law relating to award of contracts by the State, instrumentalities of the State, statutory bodies and other authorities which could be treated as 'State' within the meaning of Article 12 of the Constitution has been well-settled by a catena of decisions of the Supreme Court and High Courts and to mention few are the decisions in Ramana Dayaram Shetty v. International Airport Authority of India , Fertilizer Corporation Kamgar Union (Regd.), Sindri and Ors. v. Union of India ; Assistant Collector of Central Excise, Chandan Nagar, West Bengal v. Dunlop India Limited ; Tata Cellular v. Union of India (1994)6 SCC 651; Ramniklal N. Bhutta v. State of Maharashtra ; Raunaq International Limited v. I.V.R. Construction Limited ; Monarch Infrastructure (Private) Limited v. Commissioner, Ulhasnagar Municipal Corporation and Ors. ; and Air India Limited v. Cochin International Airport Limited and Ors. . It is true that 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 of paramount importance 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 it is not open to judicial scrutiny unless such terms could be condemned on the touchstone of Article 14 postulates. 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 the decision taken by them is not amenable to judicial review on merit, the Court can examine the decision making process and interfere if it is found vitiated by mala fides, unreasonableness and arbitrariness and due to violation of the terms and conditions imposed by the authority itself It is trite law that the State, its corporations, instrumentalities and agencies have the public duty to be fair to all concerned. The judgments of the Apex Court referred to above would show that the writ petitions against the State and its instrumentalities arising out the contractual obligations are maintainable and judicial review is permissible both at the pre-contract stage and post-contract stage and the action of the State and its instrumentalities should be fair, just, reasonable and free from arbitrariness. In other words, the State and instrumentalities of the State, in the matter of awarding contract or terminating the contracts, are bound by the postulates of Article 14 of the Constitution of India, viz., reasonableness, fairness and non-arbitrariness.