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H.T. Somashekar Reddy Vs. Government of Karnataka and Another - Court Judgment

LegalCrystal Citation
SubjectConstitution
CourtKarnataka High Court
Decided On
Case NumberWrit Petition No. 29221 of 1997
Judge
Reported in2000(1)KarLJ224
Acts Constitution of India - Articles 1, 2, 3, 3.3.3., 3.2.1, 4, 5, 6, 6.2.6, 6.2.8, 7, 14, 18, 22.5, 162, 196 to 201, 243-H, 246(3), 265, 298 and 299; Arbitration and Conciliation Act, 1996 - Sections 11; Indian Contract Act, 1872 - Sections 28; Land Acquisition Act, 1894; Air (Prohibition and Control of Pollution) Acts, 1971 - Sections 21; Water (Prohibition and Control of Pollution) Acts, 1974 - Sections 25; Air (Prohibition and Control of Pollution) Acts, 1981; Wildlife Prevention Act,; Indian Forest Act; Code of Civil Procedure (CPC), 1908 - Sections 151; Forest Conservation Act, 1980 - Sections 28 and 44; Karnataka Land Revenue Act; Environment (Protection) Act, 1986 - Sections 3(1 and 2); Environment (Protection) Rules, 1986 - Rule 5(3); Urban Land (Ceiling
AppellantH.T. Somashekar Reddy
RespondentGovernment of Karnataka and Another
Appellant Advocate Sri M.P. Eswarappa, ;Senior Advocate for Sri Ko. Channabasappa, Adv.
Respondent Advocate Sri D'Sa, Government Advocate, ;Sri R.N. Narasimha Murthy, ;Senior Advocate for M/s. King and ;Partridge, Adv.
Excerpt:
constitution - tender agreement - petition challenged agreement between government and respondent 2 regarding performance of certain project - petitioner contended that real purpose of agreement was to develop real estate and not to construct highway - no competitors or any other person came forward to take up project in question - nothing to show that state acted mala fide out of improper or corrupt motive to protect interest of another person at cost of state - state acted to achieve public purpose of rapid economic growth of area - contract not entered into dispose of or fritter away assets or for augmenting revenue as alleged - no favouritism or arbitrariness involved - held, agreement cannot be held to be invalid only because state had not invited global tenders. - - illegality.....order1. petitioner who is a retired chief engineer, has filed this petition as public interest litigation challenging the validity of agreement dated 3-4-1997, annexure-a entered into between the government of karnataka and nandi infrastructure corridor enterprises limited, arrayed as respondents 1 and 2 (for short, 'respondents 1 and 2 respectively'). the agreement has been executed by the secretary, public works department as an authorised officer of respondent 1 under article 299(1) of the constitution of india, for and on behalf of governor of karnataka. by this agreement the second respondent is authorised to construct and provide infrastructure corridor project between bangalore and mysore ('the project', for short), consisting of residential, industrial plants, water treatment and.....
Judgment:
ORDER

1. Petitioner who is a retired Chief Engineer, has filed this petition as public interest litigation challenging the validity of agreement dated 3-4-1997, Annexure-A entered into between the Government of Karnataka and Nandi Infrastructure Corridor Enterprises Limited, arrayed as respondents 1 and 2 (for short, 'respondents 1 and 2 respectively'). The agreement has been executed by the Secretary, Public Works Department as an authorised officer of respondent 1 under Article 299(1) of the Constitution of India, for and on behalf of Governor of Karnataka. By this agreement the second respondent is authorised to construct and provide Infrastructure Corridor Project between Bangalore and Mysore ('the Project', for short), consisting of residential, industrial plants, water treatment and other infrastructure developments as set out in the 4th para of the preamble in the said agreement. According to the petitioner the agreement entered into between respondents 1 and 2 is detrimental to the people of the area and against the Constitution of India and laws in force in the country. Illegality of the agreement being of such magnitude that if it is not challenged by the citizens of the State it would result in disastrous consequences affecting Agriculture, Horticulture, Environment and Pollution of the State. The people of the State are likely to be affected generally with the implementation of the Project. The persons to be affected are so large in number that they cannot individually approach this Court for relief. Therefore, the petition be entertained as public interest litigation.

2. To appreciate the contentions raised between the parties and for its proper adjudication, it is necessary to refer to the factual matrix of the dispute as stated in the petition and derived from the official record produced before us in extenso. The same is:

Bangalore and Mysore are two very important cities of the State of Karnataka and are connected by existing Bangalore Mysore Highway SH-17 which was built over 100 years ago. With the passage of time and modernisation of technology, the traffic on the roads has increased and heavy and fast moving vehicles have come in place of the slow moving traffic at that time. These two cities have been exposed to shock of industrialisation, heavy development and over-population. In order to meet the ends of the industry, and transportation, the State of Karnataka invited tenders for designing, constructing, maintaining and operating of an Express Highway between Bangalore and Mysore on 28th September, 1988. In response to the said advertisement only one bid was received with certain stringent conditions which were not acceptable to the Government. The said conditions were:

'(a) They proposed to form a new Company to take up the Project if awarded this work.

(b) They requested Government backing for guarantees, etc.

(c) They wanted freedom of fixing the Toll rates, consistent with the market conditions and freedom to revise the same from year to year according to the rise in cost of living index. They specified the lease period of approximately 60 years.

(d) They requested 15 months time for verifying the Project Reportbefore signing the formal contract.

(e) The effect of cost push on account of quantity variation due to inadequacies in the present design and estimates would have to be settled before actual construction.

(f) In case of difficulty encountered by them for acquiring land, the Government should step in and acquire the land and handover the possession to them at the value provided in the project estimate. Construction work will be started once the entire land is in theirpossession.

(g) In the event of variation in traffic forecast as contained in the Project Report resulting in adverse effect on profitability, they should be given an opportunity to negotiate with the Governmentbefore signing the final contract.

(h) In addition to other points like safeguards, maintenance of law and order, preservation of the basic features of the project, the bidders demanded protection of the source of revenue by ensuring that there will be no competing road development by the State and other agencies, affecting the revenue of the project. The State Highway Nos. 17 and 86 should not be improved from its present State, other than routine surface maintenance'.

State Government on scrutiny of these conditions was of the opinion that the conditions imposed were unreasonable and not in the best interest of the State. The bid was not accepted. A survey was got conducted by Asian Development Bank and as per the report submitted by the Bank, the population of Bangalore City by the year 2011 would be in the region of 8.2 million and suggested the need for improvement of this corridor. It was also suggested that the State Government should bear 20% of the project cost along with the cost of Land Acquisition. The copy of the report has been attached as Annexure-R4 to the written statement of respondent 1. As the State Government was not possessed of sufficient means, it started making efforts to take up the scheme on Build-Own-Operate-Transfer (for short, 'BOOT') concept by any consortium, to take up the development of the project from their own resources and get back their expenditure through collection of Tolls.

3. During early 1995 in order to establish sister State relationship with the State of Massachusetts, USA and State of Karnataka, a MOU dated 20th February, 1995 was entered between these two States. In the said MOU it was agreed by the Government of Karnataka to extend support for development of Bangalore Mysore Expressway provided commercial viability, competitiveness and feasibility of the project was established to the satisfaction of the State Government. Second respon-dent submitted a project report for the consideration of the first respondent.

4. For review of the project report submitted by respondent 2 and also to give necessary advice, recommendation etc., High Level Committee was formed under the Chairmanship of the Minister for Public Works on 5-6-1995. In this High Level Committee, the Principal Secretary, Commerce and Industries Department, Principal Secretary, Housing and Urban Development, Secretary, Public Works Department, Chief Engineer C and B (South Zone, Bangalore) were the members. The Chairman and the Managing Director Karnataka State Industrial Investment Development Corporation were official members and the Chairman, Technical Advisory-Committee (Irrigation) was non-official member. This Committee met often to review the progress made and for giving necessary advice and clarification. Second respondent presented its 'Bangalore Mysore Infrastructure Corridor Project' on 26th August, 1995. The High Level Committee after conducting meetings and obtaining all clarifications desired, submitted its report to the Government on 12-10-1995. The report of the High Level Committee and the project report submitted by the 2nd respondent was examined on 6th November, 1995 by the Cabinet Sub-Committee which recommended this report to be brought before the Cabinet. After due consideration and certain modifications the report was accepted. The number of townships was reduced from 7 to 5. The townships were introduced to make the project economically viable. There was no financial investment/commitment of whatsoever on respondent 1. On the proposal being accepted, the second respondent submitted a draft during February 1997, after taking into consideration various suggestions of the Core Committee to negotiate with the 2nd respondent. The Cabinet Sub-Committee suggested various modifications to the Framework agreement which were duly incorporated. Ultimately respondent 1 approved the Framework Agreement on 17th March, 1997 and the same was signed on 3rd April, 1997.

5. The agreement Annexure-A consists of 22 Articles and 6 Schedules. Article 1 consists of definition and interpretation of the words occurring in the agreement. Article 2 lays down conditions precedent. Article 3 lays down the obligations placed on the Government of Karnataka. Article 4 envisages the constitution of Empowered Committee as defined in paragraph 4.1. This Empowered Committee is the mechanism by which Government of Karnataka will coordinate for the purpose of its obligations under the agreement.

6. Petitioner has challenged the agreement Annexure-A stating that in order to enable the second respondent to execute the project the first respondent shall make available 20,193 acres of land as set out in Schedule 1 at page 74 of the agreement. Out of 20,193 acres of land 6,956 acres belong to the Government and the remaining 13,302 acres belong to the private parties to be acquired by the State and handed over to the second respondent. According to the petitioner, the purpose of the project is not so much the construction of 111 k.m. Express High-way but to facilitate the construction of commercial complexes as detailed in Schedule 4 including the construction of golf courts, movie theatres, amusement parks, temples and religious activities and any other business area which may emerge from time to time. The real purpose, according to the petitioner is to develop the real estate and not to construct the 111 k.m. Express Highway to connect Bangalore with Mysore which is only incidental in nature. In the agreement it is stated that the project shall be built, operated and transferred after the concession period of 30 years as defined in para 3.3.1 which is extendable by mutual agreement for a further period of 99 years at a nominal rental of Re. 1/- per annum.

7. According to the petitioner agreement consists of illegal terms and conditions binding the Government of Karnataka. It has taken up on itself the obligation not only to acquire the land for the purpose of road or township etc., but taken upon itself the obligation to supply water, power and facilities for water treatment etc. For instance the petitioner has cited conditions contained in Articles 3.3.3 and 3.2.1. All these provisions in Article 3 in essence is to bind the Legislature to enact laws, promulgate orders/rules/notifications and to make amendment to the existing laws. Virtually the legislature and the Government of Karnataka have been bound hand and foot to subserve the commercial interest of the 2nd respondent, by subverting the constitutional provision regarding the power of the Legislature to enact laws laid down in Articles 196 to 201. Not only that the State Government has bound itself to do certain acts and pass certain laws contrary to constitution but also undertaken to forestall and defeat the provisions of Section 2(2) of the National Highways Act of 1956 or any other similar laws of India. No State Government in the Union of India, can undertake to prevent the extension of any federal law in any part of the Country. Suffice it to say that the rights granted to the 2nd respondent under Article 3 are absolutely unconstitutional, illegal and detrimental to the State. Article 5 lays down the provisions for acquisition of land from private owners by exercising powers under the Land Acquisition Act and also the obligations to handover Government Revenue Lands. Article 6 lays down the right of the 2nd respondent to the operation of the Toll Road. According to the petitioner second respondent has been empowered to detain any person who violates any rules and regulations that the Company may promulgate in the matter of operation of the Toll Road. This term of the agreement results in handing over the State into the hands of the 2nd respondent-Company. The rule of law is subverted to subserve the interest of a Private Company. Article 7 lays down the provisions for the construction of townships. Petitioner submits that this is the most damaging provision detrimental to the owners of the land who are going to be affected by acquisition of the land. Though the agreement is styled as Infrastructure Corridor Project purporting to facilitate the construction of Express Highway, the real object is to facilitate the respondent to develop the land by building the five townships and provide the facilities and services set out in Schedule 4. From his experience as an engineer, petitioner has stated that 4 tracks with a width of 100 mts. requiresabout 25 acres per kilometre. The total extent of land required for 111 k.ms. between Bangalore and Mysore would be 2,775 acres, but astonishingly 6,999 acres of land is earmarked to the Toll Road. The rest of the land is earmarked for 5 townships with all other facilities set out in Schedule 4. The real purpose of this project is to facilitate the 2nd respondent-Company to acquire land through the State agency at the prevailing market value of the land and make it over to the Company to develop it as townships and make huge profits running into thousands of crores of rupees. Construction of township is not an obligatory function of the State and it could never be for public purposes within the meaning of the Land Acquisition Act.

8. As per the petitioner that as a corollary of making available the land for construction of townships, the State has under Article 8 of the agreement bound itself to provide facilities for construction of power plants. In addition to this facility the State has bound itself to supply 2 TMC of water for the townships from the Cauvery river. It is submitted that as it is, water supply system to the city of Bangalore was so precarious and difficult that the people are starved of water. The supply of water to the proposed townships will be one of the greatest problems and difficulties not only to the Government but also to the growing population of Bangalore and its suburbs. State is embroiled in legal battle with Tamil Nadu in the utilisation of Cauvery Water and any commitment on the part of the 1st respondent to supply water from the Cauvery river will not only diminish and deplete the water supply to the existing population for drinking, irrigation and industrial purpose but also invite legal action from the lower riparian State. No prudent Government would hazard such a risk under the present circumstances when the Cauvery water disputes Tribunal is seized of the matter and the concerned States are bitterly fighting the battle.

9. Besides this obligation to provide water facilities to townships the 1st respondent has also taken obligation to make over the rights in the treated sewage water. The B.W.S. & S.B. has already taken up a Special Project to treat and recycle the sewage waste-water and to augment the water supply to the non-drinking purposes which is utilised for industrial, agriculture and horticulture purposes to save the drinking water. Though B.W.S. & S.B. has already undertaken the work of treatment and recycling the water, that very water is now sought to be given away to the 2nd respondent-Company to the extent of 7 TMC per annum. The magnitude of the loss to the State Exchequer by this agreement is startling, detrimental to the people both in Bangalore City and in the proposed Corridor area.

10. Apart from this the State Government to its detriment and responsibilities of the State has agreed to give tax holidays in respect of the State and local taxes, duties including registration fee, levies and conversion fine are granted to the 2nd respondent. The project if implemented will have far reaching disastrous impact upon the environment not only in the Corridor area covered by the project but in the 4 districts of Mysore, Mandya, Bangalore Urban and rural. Setting up of townshipsand industrial area will invariably result in the violation of laws governing the environment and pollution which will result in violation of the provision of Air and Water (Prohibition and Control of Pollution) Acts of 1971 and 1974, the Wildlife Prevention Act, the Indian Forest Act and Forest Conservation Act etc. Within the project area falls a large track of forest land, irrigated agricultural land and fertile dry land. At least 13,000 acres of private land will have to be acquired and converted for non-agricultural purposes, The loss of agricultural land results in rendering agriculture labour unemployed. The forest land is being converted without taking necessary permission from the Central Government.

11. Article 18 lays down the mechanism of resolution of disputes by way of arbitration to be held at London and governed by the New York Convention Rules of 1956. The Government of Karnataka has bound itself that the arbitration shall not be governed by the Indian Laws and that the disputes shall not be treated as a domestic arbitration. According to the petitioner it is unthinkable as to how the 1st respondent can enter into an agreement with a Foreign Company opting out of the laws of the Country and the State. The agreement contains the confidentiality clause (Article 22.5) which prohibits the contracting parties from disclosure or use of confidential information for its purpose in any manner. This has the effect of nullifying the laws of this Country in the matter of breach of contract by the 2nd respondent.

12. On the day the petition was to be taken up for final argument an application under Order 6, Rule 17 read with Section 151 of the CPC was filed seeking to amend the writ petition and add by way of amendment certain new grounds. The new grounds sought to be added are that 2nd respondent was registered on 17th January, 1996 long after a feasibility report was submitted to the 1st respondent which clearly shows that the second respondent was formed only for this work. According to the petitioner the antecedents of one of the major associates of respondent 2 i.e., the collaborators are bad and they do not have either the financial or the technical capability to execute the work. That the action on the part of the 1st respondent in entering into the impugned contract with the 2nd respondent is tainted with mala fides and the same is for extraneous consideration causing loss to the State Exchequer and therefore calls for an enquiry in the matter and for prosecution of those involved in it for the offence of breach of trust and other offences. Prayer has been made that the matter be got enquired into by Central Bureau of Investigation.

13. After tracing out the details from the beginning upto the signing of the framework agreement Annexure-A, respondent 1 in its statement of objections has denied the allegations made in the petition. It has been averred that the petition has not been filed in public interest but to serve some personal interest with ulterior motive. Referring to the experience of the petitioner as an engineer, it has been stated that he is not qualified to assess and evaluate the proposed concept of the project in view of the modern technic.

14. Coming to the imperative need of the construction of highway it is stated the existing Bangalore Mysore Highway (S.H. 17) is an inadequately designed meandering road laid over 100 years ago depending on the needs which existed then. The cities of Bangalore and Mysore having been exposed to the shock of heavy development and over-population, are practically bursting at the seams. Two cities have also undergone heavy industrialisation and development of commerce which has necessitated the plying of heavy vehicular traffic to take care of the needs of industry, commerce and personal transportation. The average traffic volume on this road has increased from 3,500 passenger car units during 1971-72 to 35,000 passenger car units during 1996-97, every day. The project if implemented would help in reducing air, water and noise pollution in and around Bangalore City. The traffic congestion in Bangalore City would be reduced to a considerable extent especially the movement of trucks. The proposed project ensures construction of truck terminals to enable trucks to supply various materials to Bangalore City to unload the same without having to enter the City which is being done presently. The proposed project envisages the construction of the outer peripheral ring road, link road and the elevated road which will reduce the stress on the roads in Bangalore City thereby reducing the accidents and ensuring faster movement of traffic.

15. Allegation that the agreement entered is opposed to the Constitution and the laws in force or that it is detrimental to the people of the area who are likely to be directly affected by the proposed project, has been denied. Allegation that it would result in disastrous consequences affecting agriculture, horticulture, environment and pollution control etc., is denied being baseless and vague. There is no wildlife, forest on the alignment. The project provides for relief and rehabilitation package separately for the people affected in the area where Expressway and the townships are proposed. The project does not affect the citizens of Bangalore City as alleged. It is submitted respondent 2 will augment independent sources of water supply, electricity and other essential amenities at its cost. The project will help in decongesting the city by developing townships which will be self-contained. The Expressway also contemplates high speed roads to connect North and South of Bangalore by the formation of peripheral road to ease out the considerable heavy traffic and congestion which otherwise plies through the city. As a mega project like the Expressway involves considerable extent of land, answering respondent has agreed to provide the minimum extent of land required for the project partly out of the land owned by the State and by acquiring the balance. Second respondent will not only construct the proposed Expressway but also link roads, peripheral road, interchanges, service roads, toll plazas and maintenance area etc., in addition to the townships. The townships can be developed by respondent 2 only after Expressway is completed. Under Clause 3.5.1 the concession period is 30 years initially and however extendable on mutual consent which the replying respondent may or may not extend since it is not obliged to extend the said period.

16. Allegation that the replying respondent has connected with mala fide intention to permit respondent 2 to build the townships as a developer in the garb of construction of highway, has been denied. The townships have been planned to absorb the inevitable development of industry and commerce and human settlements, which at the moment are going on in an unregulated way. These townships would only relieve the population pressure in the Cities of Bangalore and Mysore and intervening townships without necessarily attracting permanent population from outside in a major way. Development of townships is inevitable and are a necessary corollary to urbanisation, the planning of township is a part and parcel of Express Highway project, so that the development of the whole area would be appropriately guided and balanced. To construe the concept of townships as an attempt at the commercialisation of the Express Highway project reflects the gross miscomprehension of the scheme in the petitioner's mind. Allegation that only 2,775 acres are needed for the Express Highway is denied. Keeping in view the land developments and future developments of the peripheral Ring Road, Link road and elevated road which will be completely grade separated with the interchanges, service and maintenance areas, for 111 k.ms. of Expressway, 41 k.ms. of peripheral road and 9.8 k.ms. of link road, the land required for the construction of highway itself would be 6,999 acres.

17. It has been emphatically denied that supply of water to the township will fall within the allocation for drinking water, claimed by the State Government before the Cauvery Water Dispute Tribunal, in the dispute with Tamilnadu and Kerala. Allegation that it would diminish the supply of water to Bangalore is also denied. Apart from this it has been submitted that population growth in-between the two cities of Bangalore and Mysore in any way need water. No Constitutional Government can shirk its responsibility of providing adequate water for drinking and other purpose to its citizens. It is asserted that it is idle and short-sighted to contend that water should not be supplied for drinking or industrial purpose when the population and industries are bound to expand. Supply of untreated sewage water by B.W.S.S.B. to respondent 2 would not in any way affect or result in loss of supply of the sewage water for agriculture and industrial purpose. It is submitted that the sewage water now discharged into the Vrishabhavathy valley is 200 MLD, and other affluents discharged is 150 MLD. In addition, a discharge of 85 MLD is expected to be added after the commissioning of the 4th Stage of Cauvery Water Supply Scheme. The present efforts at treatment of sewage water by BWSSB touches only an insignificant portion of this huge discharge and even there, not much headway has been made. In order to utilise this huge amount of sewage water which is going waste and which cannot in any way be treated has been agreed to be supplied by BWSSB to respondent 2. It contemplates the establishment of a treatment plant by respondent 2 at its own expense and no question of huge loss to the State Exchequer is involved, as the secondary treated water is purchased by the 2nd respondent on the price fixed by the Board from time to time. The question of causing loss in any way does not arise. Allegation that first respondent has conferred specialfavours on respondent 2 in terms of tax exemption and other benefits has been denied.

18. The latest policy as published by the Government of Karnataka provides for a concession to be given to all mega projects involving high capital. It is the policy of the State Government to give maximum benefits to those who invest in the State's infrastructure. Replying respondent is not spending a single paise and in turn it has got more profits on the developments carried out in the waste land. The exemption of taxes, tax holidays etc., are decided in order to promote infrastructure projects in the State. It is the policy of the Government to encourage private participation in the construction of infrastructure projects. Government of India has also proposed to maintain National Highways Act to include land for housing and other developmental activities which are integral part of the highways project and to treat such acquisition of land as required for 'public purpose'.

19. Clause contained in the agreement relating to the resolving of dispute through international institutions in a 3rd party neutral country has been defended by saying that all the agreements with international investors where the funding is through the international institutions have the standard clause of resolution of disputes in a 3rd party neutral Country. By this agreement the foreign institutions get a comfort level for the investment made. Petitioner's averment that the confidentiality clause prohibiting the contracting parties from disclosure or use of any information has the potential like a Bofors Agreement is baseless and untenable. No middlemen or agent is involved in this contract except the Government of Karnataka and respondent 2. It has been asserted that it is highly improper to compare this agreement with that of the Bofors Agreement. The confidentiality clause regarding information inserted in the agreement is just to safeguard the propriety information of respondents 1 and 2 from falling into other hand who may try to misuse for their unlawful gains.

20. It has been repeatedly asserted that the replying respondent has not contravened the laws of the land and the projects will be processed and finalised according to the existing laws. Respondent 2 would be required to get necessary clearance from the concerned authorities under the various Acts before taking up the project. That the replying respondent is not bound itself and as well as the legislature to make laws or to issue notifications or to prevent the implementation of such legislation. Allegations that the police powers have been transferred to second respondent have also been denied. Allegation that power to create Green Belt and to make provisions regarding the town and country planning having been transferred to respondent 2 have also been denied.

21. Respondent 2 in its statement of objections has generally taken the same line of defence as respondent 1. It has denied the allegations made by the petitioner. It has been asserted that there would be no violation of the Air and Water (Prohibition and Control of Pollution) Acts, the Wildlife Protection Act and the Forest Conservation Act and other related legislation relating to protection of environment. Althoughthis respondent had submitted the proposal to the State Government for construction of Expressway and seven self-contained townships, the High Level Committee who examined the proposal after examining the same reduced it to five townships. The allegation that there was no application of mind before clearing the project by respondent 1 has been denied. Allegation that the project would cause huge loss to the State is without providing factual basis for such allegations. There are no forest area coming in the way and the land proposed to be used is by and large kharab or dry land. There are various environmental studies and an Environment Impact Assessment required to be carried out prior to the execution of the project for the construction of a highway. All such studies are in the process of being carried out and the reports prepared. It would be premature at this stage to allege any environmental damage unless the studies are conducted and results are ascertained. In any case, the project is subject to the operation of the environmental laws prevailing in the State. The replying respondent is required to conduct all the studies and obtain necessary clearance before the execution of the project.

22. Coming to the details of the project it has been stated that the impugned agreement involves the construction of a 'State-of-the-Art' 4 lane Expressway connecting Bangalore City and Mysore and 5 townships to accommodate a population of about one lakh each, along the Expressway. The Expressway has been designed in such a manner that it can be extended to a 6 lane Expressway in the future. The project also envisages the construction of a Southern Outer Peripheral Road of approximately 41 kilometres connecting the National Highway 4 and National Highway 7, a 9 kilometre long Link Road, connecting the Bangalore City Mysore Expressway to State Highway 17 and an Elevated Link Road connecting the above Link Road to downtown Bangalore City. The entire cost of the project, including the cost of acquisition of land is to be, met by this respondent. The Expressway is to be operated by this respondent for an initial period of thirty years subject to further extensions if agreed to by respondent 2 and thereafter to be transferred to respondent 1. Replying respondent is required to ensure that at the end of the initial period of thirty years, on handing over the same to the State Government the Expressway has a further minimum life of thirty years. The land made available to this respondent for the construction of the townships has to be utilised in the proportion of 45% for commercial exploitation, 25% for open spaces and 25% for common facilities to be transferred to respondent 1 and 5% to be developed for the purposes of Municipal Offices etc., to be transferred to respondent 1. In all 194 k.ms. of road is proposed to be constructed at an approximate cost of Rs. 8 Crores for each kilometre. According to this respondent the project if implemented will go a long way for the development in and around Bangalore City. With regard to water pollution it is submitted that the Vrishabhavathy River is the present dumping ground for all the sewage water from Bangalore City. The river is polluted to such an extent that there is a stink all along the way. Once the project is completed this respondent will require about 85 million litres of sewage perday which will be purchased from the Bangalore City Water Supply and Sewerage Board at the existing rates. The sewage is proposed to be used for all secondary purposes along the Expressway and in the townships after treating the same. The replying respondent has agreed to set up its own water treatment plants to treat the secondary sewage to be supplied by the BWSSB. The sewage is proposed to be used for secondary and tertiary users like gardening, horticulture, arboriculture, flushing etc., thereby reducing the intake of potable water for these purposes to a considerable extent.

23. The replying respondent approached the Indian Space Research Organisation for assistance to determine the alignment of the Expressway and the location of the townships. Using Satellite imagery, and aerial photographs taken by the National Remote Sensing Agency the replying respondent has been able to identify land involving no forest area at all and minimal wet and garden land, thus requiring only kharab or dry land, largely. The above survey has enabled this respondent to identify lands mostly belonging to the State Government and having lesser population to reduce the displacement of the existing population to the minimum. Effort has been made to avoid all natural creeks and underground water sources to avoid any environmental damage. Table showing the details of classification of land required to the project is as follows:

'Land

Road

(acres)

Township

(acres)

Total

(acres)

Percentage

Kharab

1,740

5,818

7,558

37

Dry

2,936

6,881

10,817

54

Wet

1,183

479

1,662

8

Garden

140

16

156

1

Total

6,999

13,194

20,193

100'

24. Need to develop the townships has been justified by stating that the Karnataka Urban Infrastructure Development Project prepared by the Asian Development Bank indicates that the population of Bangalore City by 2011 will be in the region of 8.2 million. The existing infrastructure and the proposed plans if implemented will cater to the requirements of about 7 million people only, leaving a gap of about 1.2 million which will lead to a severe stress on the existing infrastructure, which would affect the environment. The project, on completion will provide alternate accommodation for about 0.5 million people, which reduced the above gap to about 0.7 million.

25. That a careful perusal of the terms of the Agreement will demonstrate that the State Government, by entering into the impugned agreement, has not bound the Legislature into enacting any laws. That the legislative powers to enact laws is subject only to restrictions contained in the Constitution and no State Government can bound the legislature into enacting laws which are contrary to the provisions of the Constitution of India. Averment that under the Land Acquisition Act, 1894 land cannot be acquired for the benefit a Company has been denied. It hasbeen submitted that the allegation made by the petitioner is speculative because there are various legislations providing for acquisition of land and the same could be acquired under any of the legislations which in the opinion of the State Government is appropriate. It is stated that the project by its very nature requires considerable extent of land and that is why the respondent has agreed to provide the land to the extent available with it and acquire the balance and make available the same to the replying respondent. There are mutual obligations on both the parties under the impugned agreement and respondent 1 is only facilitating the acquisition of land for which the replying respondent has to pay at the existing market rates.

26. The claim regarding obligation of the parties in respect of water and power supply to the project are self-explanatory. Respondent 2 has only agreed to make its best efforts to prevent the Central Government from declaring the project road as a National Highway under the National Highways Act. That is vital to the execution of the project inasmuch as the replying respondent has to invest substantial amounts in the construction of the Expressway. If the same is converted into a National Highway and taken out of control of the replying respondent then it will suffer irreparable financial loss. 'Best Efforts' has been defined in Clause 22.15 of the agreement which clearly indicates that the State Government is only required to pursue all legal measures and it is further clear that there is no guarantee that the results will be achieved. Clause 3.2.1 makes it clear that the provisions of the impugned agreement did not bind the legislature. It is always open to the legislature to make such laws as it deems fit. It has been denied that the Legislature and Government of Karnataka are bound hand and foot to subserve the interests of the respondent. Neither the State Government nor the replying respondent can subvert the provisions of Articles 196 to 201 of the Constitution of India. All action taken by the State Government are subject to all provisions of the Constitution. Allegation that the replying respondent has been empowered to exercise police powers in the Expressway has been denied. As per Clause 6.2.8 of the impugned agreement the replying respondent is required to handover persons to the local police in case of any mischief. It has been denied that rule of law, the bedrock of the Constitution, has been subverted to serve the interests of this respondent or that the State is handed over to this respondent. It has also been denied that the writ of the replying respondent will run on the Toll Road. As per Clause 6.2 of the impugned agreement, the operation of the Toll Road and the Toll Authority is subject to the limitations contained in the Central Motor Vehicles Act or any other applicable laws. It has been denied that the Toll Authority will replace the State and that the entire users of the road and the neighbouring villages will be governed by the Toll Authority and the charter promulgated by the said authority. It has been submitted that the Toll Authority's control over the Toll Road is subject to the provisions of all applicable laws.

27. It has been denied that the replying respondent would make profits running into thousands of crores of rupees at the expense of theGovernment by developing townships and it is detrimental to the owners of the land whose land is sought to be acquired. It has been stated that 6,999 acres of land will be required for the roadways and 13,194 acres of land for development of five townships. Authorisation to this respondent to generate, transmit and distribute power is subject to clearance from the Central Electrical Authorities (Guidelines), availability of fuel as of prevailing tariffs according to CEA Guidelines and obtaining all Environmental Clearances and other approvals as per applicable laws. No special concessions are being offered to the replying respondent. Concession which are being offered to other industries would be offered to the answering respondent as well. No special favour is being shown. The project if completed would be for the benefit of the public in general and for its overall development. The agreement has not been entered in a clandestine manner but in open and with complete transparency.

28. In reply to the additional grounds taken in I.A. I, it has been asserted that the replying respondent is technically and financially sound. It has taken up many projects of national and international approaches and completed them successfully. That no case is made out for holding a Central Bureau of Investigation enquiry, as the project has been entered with complete transparency in keeping with the Government Policy to invest money in the infrastructure of the State from private sources on the principle of BOOT basis.

29. From the narration of the above facts we find that the Bangalore Mysore Infrastructure Corridor Project, envisages, in addition to the construction of an Expressway between Bangalore and Mysore, other connected developmental activities, such as:

(i) Development of area between Bangalore Mysore.

(ii) Divergence of traffic from Mysore-Chennai; Chennai-Bom-bay.

(iii) Construction of elevated road from Sirsi Circle upto 9.4 k.ms.

(iv) Construction of 2 truck terminals.

(v) Development of five identified local areas into townships with all infrastructure for habitation and economic activities.

(vi) Utilisation of sewage water being put to no productive use by BWSSB.

(vii) Development of tourism to augment the State's revenues.

30. Scope of enquiry in the present petition broadly speaking is confined to the following questions:

(a) Whether the Government has acted arbitrarily in entering into the agreement with respondent 2?

(b) Whether agreement is illegal as being opposed to public policy?

(c) Whether the agreement contravenes any constitutional provisions or other existing enactments?

(d) Whether the agreement is vitiated by mala fides?

(e) Whether the rights of any individual or groups of individuals is being illegally affected by the execution of the agreement?

(f) Scope and extent of judicial review in matters of State Policy.

In addition to the above six broad points certain other submissions were also made during the course of arguments to which reference would be made at the appropriate stage and dealt with.

31. Important aspect which needs to be examined at the outset is as to what is the scope of judicial review in contractual transactions of the Government. According to the Counsel for the respondent the judicial review in the matter of contracts entered into with State or its instrumentality with private contractor is limited to prevent arbitrariness or favouritism. Courts can only examine the decision making process and not the merits of the decision specially in the case of policy matters. Scope and extent of judicial review into the administrative actions of the State or its instrumentality in entering into contracts was examined by the Supreme Court in G.B. Mahajan and Others v Jalgaon Municipal Council and Others, and it was held that the scope of judicial review in such matters is limited to examine whether the contract entered is within the limits of the authority assigned to it and the bona fide of the transaction only. In that case as in the present case the contract was to be executed by the developer on self-finance basis subject to handing over administrative building of the complex to the municipality free of cost and allotting some shops at a fixed rate/free of cost to certain specified persons while having right to dispose of the remaining accommodation at its own discretion and to retain the premium received by way of reimbursement of its financial outlays plus profits. The contract was challenged in public interest on the ground of legal permissibility, economic soundness and the propriety of the policy as in the present case. Turning down the contention of the petitioners, and on consideration of the case law including the judgments cited in the present case as Ramana Dayaram Shetty v International Airport Authority of India and Others, and M/s. Kasturi Lal Lakshmi Reddy v State of Jammu and Kashmir and Another, it was held:

'On a consideration of the matter, it appears to us that the argument that a project envisaging a self-financing scheme, by reason alone of the particular policy behind it, is beyond the powers of the local authority is somewhat too broadly stated to be acceptable. A project, otherwise legal, does not become any the less permissible by reason alone that the local authority, instead of executing theproject 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 extent 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 overruns in projects, balancing of costs against timescales, 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'.

32. Making a distinction between the scope of the test of reasonableness in administrative law as distinguished from the constitutional standard of reasonableness of the restriction and the fundamental rights of which the Court of judicial review is the arbiter, it was held:

' 'Reasonableness' as the test of validity is not the Courts own standard of reasonableness as it might conceive it in a given situation. A thing is not unreasonable in the legal sense merely because the Court thinks it is unwise. Different contexts in which the operation of 'reasonableness' as test of validity operates must be kept distinguished. Some phrases which pass from one branch of law to another carry over with them meanings that may be inapposite in the changed context. Some such thing has happened to the words 'reasonable', 'reasonableness' etc. The 'reasonableness' in administrative law must distinguish between proper use and improper abuse of power. The administrative law test of 'reasonableness' as the touchstone of validity of the impugned resolutions is different from the test of the 'reasonable man' familiar to the law of torts, whom English law figuratively identifies as the 'man on the Clapham omnibus'. In the latter case the standard of the 'reasonable man', to the extent such a 'reasonable man' is Court's creation, is in a manner of saying, a mere transferred epithet. Yet another area of reasonableness which must be distinguished is the constitutional standards of 'reasonableness' of the restrictions on the fundamental rights of which the Court of judicial review is the arbiter'.

33. While considering reasonableness in administrative action by way of judicial review a Court cannot set itself as an Appellate Court in judgment of the reasonableness of the decision instead of the correctness of the decision making process. It was observed:

'While it is true that principles of judicial review apply to the exercise by a Government body of its contractual powers, the inherent limitations on the scope of the inquiry are themselves a part of those principles. For instance, in a matter even as between the parties, there must be shown a public law element to the contractual decision before judicial review is invoked. In the present case the material placed before the Court falls far short of what the law requires to justify interference'.

34. In Tata Cellular v Union of India, after discussing the relevant case law and the principles and the scope of the power of judicial review in the matters of contractual obligations of the State and its instrumentality, it was observed in paragraph 77 of the judgment as follows:

'The duty of the Court is to confine itself to the question of legality. Its concern should be:

1. Whether a decision-making authority exceeded its powers?

2. Committed an error of law.

3. Committed a breach of the rules of natural justice.

4. Reached a decision which no reasonable Tribunal would have reached or,

5. Abused its powers.

Therefore, it is not for the Court to determine whether a particular policy or particular decision taken in the fulfilment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under:

(i) Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it.

(ii) Irrationality, namely, Wednesbury unreasonableness.

(iii) Procedural impropriety.

The above are only the broad grounds but it does not rule out addition of further grounds in course of time. As a matter of fact, in Rex v Secretary of State for the Home Department, ex Brind, Lord Diplockd refers specifically to one development, namely, the possible recognition of the principle of proportionality. In all these cases the test to be adopted is that the Court should, 'considerwhether something has gone wrong of a nature and degree which required its intervention''.

35. In M.P. Oil Extraction v State of Madhya Pradesh, it was held:

'After giving our careful consideration to the facts and circumstances of the case and to the submissions made by the learned Counsel for the parties, it appears to us that the Industrial Policy of 1979 which was subsequently revised from time to time cannot be held to be arbitrary and based on no reason whatsoever but founded on mere ipse dixit of the State Government of Madhya Pradesh. The executive authority of the State must be held to be within its competence to frame a policy for the administration of the State. Unless the policy framed is absolutely capricious and, not being informed by any reason whatsoever, can be clearly held to be arbitrary and founded on mere ipse dixit of the executive functionaries thereby offending Article 14 of the Constitution or such policy offends other constitutional provisions or comes into conflict with any statutory provision, the Court cannot and should not outstep its limit and tinker with the policy decision of the executive functionary of the State. This Court, in no uncertain terms, has sounded a note of caution by indicating that policy decision is in the domain of the executive authority of the State and the Court should not embark on the unchartered ocean of public policy and should not question the efficacy or otherwise of such policy so long the same does not offend any provision of the statute or the Constitution of India. The supremacy of each of the three organs of the State i.e., legislature, executive and judiciary in their respective fields of operation needs to be emphasised. The power of judicial review of the executive and legislative action must be kept within the bounds of constitutional scheme so that there may not be any occasion to entertain misgivings about the role of judiciary in out stepping its limit by unwarranted judicial activism being very often talked of in these days. The democratic set-up to which the polity is so deeply committed cannot function properly unless each of the three organs appreciate the need for mutual respect and supremacy in their respective fields'.

36. Applying the test laid down by the Supreme Court to the present case it would be seen that the Project of the magnitude involved in this petition, the degree of financial outlays and management expertise well beyond the resources of the Government, keeping in view the constraint of the finances, the increasing revenue expenditure and other financial commitments, Government came to the conclusion that it was well nigh impossible to set apart inputs required for this project. Simultaneously realising the immediate need of development of infrastructure of Bangalore Mysore Expressway, a policy decision was taken to get the work executed on BOOT concept. Allegation that the project scheme was tai-lured to suit respondent 2 or that the project was not put to global tenders on fixing compatible parameters, cannot be accepted. As observed earlier an offer was made through Governor of Massachusetts, USA, for the construction of the project on BOOT concept of which a project report was submitted which was examined by High Level Committee which after examining the same submitted to the Cabinet subcommittee consisting of Chief Minister and other Senior Cabinet Ministers. After examining the same it was approved by the Cabinet. Matter was raised on the floor of the house by Sri H.K. Patil, leader of the opposition in the Legislative Council where it was debated thoroughly and the objections raised by H.K. Patil were not accepted. In the matters of State Policy the Courts do not sit over the matter of policy. Such matters are in the domain of the Executive power of the State and unless such power is shown to have been exercised in an irrational manner beyond its authority or in a mala fide manner, the Courts will not interfere in the same. Government could execute the project itself but keeping in view its financial constraints it evolved a policy to get the project executed on BOOT concept which has not been shown either irrational or mala fide or impermissible exercise of authority in taking a policy decision. The power to judicial review being supervisory can be exercised to rein in any unbridled executive functioning. Under the guise of preventing the abuse of power the Court itself should not be accused of guilty of usurping the said power which vests in the executive. If the public policy is for public good and welfare and in public interest then the Courts would not interfere in such matters. Court has to ascertain whether the policy of the Government was a means to fritter away the public property for personal gains. If this element is missing then the Court would not interfere in the matter of public policy.

37. Learned Counsel for the petitioner contended that the agreement entered between the first respondent and the second respondent is vitiated by arbitrariness, violative of Article 14 of the Constitution of India inasmuch as the same is entered into without calling for global tenders and that the value of the contract runs into several hundred crores of rupees and the same is done by clandestine negotiations by certain persons with first respondent even before the registration of the second respondent which was done on 17th January, 1996. For this he placed reliance upon the observations made by the Supreme Court in E.P. Royappa v State of Tamil Nadu and Another, Ramana Dayaram Shetty's case, supra, and Shri Sachidanand Pandey and Another v State of West Bengal and Others. In Royappa's case, supra, Supreme Court added a new dimension to Article 14 of the Constitution. Bhagawati, J., in his concurring judgment held that:

'Where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Article 14.....'.

It was also held that Articles 14 and 16 strike at arbitrariness in State action and ensure fairness and equality of treatment to all and that these Articles require that such action must be based on valid relevant principles applicable alike to all similarly situate and it must not bo guided by any extraneous or irrelevant considerations because that would be denial of equality.

38. In Roman Dayaram Shetty's case, supra, Bhagawati, J., again speaking for the Court observed that activities of the State had a public element, and if it enters into a contract it must do so fairly and without discrimination and without unfair procedure. When the Government deals with the public whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largess, the government cannot Act arbitrarily at its sweet will but must act in conformity with standard or norm without being arbitrary, irrational or irrelevant. If the Government departs from such standard or norm in any particular case or cases it would be liable to be struck down, unless it is shown that the departure was not arbitrary, but was based on some valid principles which was not irrational, unreasonable or discriminatory.

39. There was no secrecy involved in the execution of the agreement. The memorandum of understanding and the statement of objections filed by respondent 1 makes it clear that discussions were held officially with the Governor of Massachusetts, USA, by the then Chief Minister of the Karnataka. Details of the discussions, the setting up of a High Level Committee and the receipt of the project report in August 1995, the decision of the Cabinet, and the acknowledgement by the Government of Karnataka on 9-9-1996 on the Company's rights on behalf of the Consortium, are all matters of public record. It is not essential for the Government always to call for tenders before entering into contract and in the given situation it can give contract without calling or floating the tenders depending on the facts and circumstances. The contract would not be vitiated only because the same was entered into without calling for the tenders so long the Government acts with bona fide intention with the interest of the State and its citizens. In the present case the contract agreement at Annexure-A is a different type of contract where a project is undertaken on BOOT basis and no money is paid by the Government to the Contractor. In M/s. Kasturi Lal Lakshmi Reddy's case, supra, it was held that it was not necessary to call for the tenders always before entering into a contract. Bhagawati, J., while again reiterating what he stated earlier in Ramana Dayaram Shetty's case, supra, held that the State is not bound to advertise and invite tenders where the State is allocating resources such as water, power, raw material etc., for the purpose of encouraging setting up of industries within the State. It was observed:

'The Government therefore, cannot, for example, give a contract or sell or lease out its property for a consideration less than the highest that can be obtained for it, unless of course there are other considerations which render it reasonable and in public interest todo. Such considerations may be that some directive principle is sought to be advanced and implemented or that the contract or the property is given not with a view to earning revenue but for the purpose of carrying out a welfare scheme for the benefit of a particular group or section of people deserving it or that the person who has offered a higher consideration is not otherwise fit to be given the contract or the property. 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 and 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'.

Regarding the particular facts of the case, it was observed:

'The argument of the petitioners was that at the auctions held in December 1978, January 1979 and April 1979, the price of resin realised was as much as Rs. 484/-, Rs. 520/- and Rs. 700/- per quintal respectively and when the market price was so high, it was improper and contrary to public interest on the part of the State to sell resin to the second respondents at the rate of Rs. 330/- per quintal under the impugned order. This argument, plausible though it may seem is fallacious because it does not take into account the policy of the State not to allow export of resin outside its territories but to allot it only for use in factories set up within the State. It is obvious that, in view of this policy, no resin would be auctioned by the State and there would be no question of sale of resin in the open market and in this situation, it would be totally irrelevant to import the concept of market price with reference to which the adequacy of the price charged by the State to the second respondents could be judged. If the State were simply selling resin, there can be no doubt that the State must endeavour to obtain the highest price subject, of course, to any other overriding considerations of public interest and in that event its action in giving resin to a private individual at a lesser price would be arbitrary and contrary to public interest. But, where State has, as a matter of policy, stopped selling resin to outsiders and decided to allot it only to industries set up within the State for the purpose of encouraging industrialisation, there can be no scope for complaint that the State is giving resin at a lesser price than that which could be obtained in the open market. The yardstick of price in the open market would be wholly inept, because in view of the State Policy, there would be no question of any resin sold in the open market. The object of the State in such a case is not to earn revenue from sale of resin, but to promote to setting up of industries within the State'.

And again,

'If the State were giving tapping contract simpliciter there can be no doubt that the State would have to auction or invite tenders for securing the highest price, subject, of course, to any other relevant overriding considerations of public weal or interest, but in a case like this where the State is allocating resources such as water, power, raw materials etc., for the purpose of encouraging setting up of industries within the State, we do not think the State is bound to advertise and tell the people that it wants a particular industry to be set up within the State and invite those interested to come up with proposals for the purpose. The State may choose to do so, if it thinks fit and in a given situation, it may even turn to be advantageous for the State to do so, but if any private party comes before the State and offers to set up an industry the State would not be committing breach of any constitutional or legal obligation if it negotiates with such party and agrees to provide resources and other facilities for the purpose of setting up the industry'.

40. In Brij Bhushan and Another v State of Jammu and Kashmir and Others, Supreme Court again reiterated its view expressed in M/s. Kasturi Lal Lakshmi Reddy's case, supra, in which the order of State of Jammu and Kashmir sanctioning supply of crude oil to the respondents was challenged on the ground that the order had been passed without advertisement or inviting tenders, while rejecting the contention it was observed:

Then, it was contended on behalf of the petitioners that the State Government had acted arbitrarily in selecting respondents Nos. 2, 3 and 4 for setting up factories within the State for manufacture of rosin and turpentine derivatives without affording any opportunity to the petitioners and others for obtaining such contract and this action of the State Government was not based on any rational or relevant principles and was, therefore violative of Article 14 of the Constitution. We must reject this ground alsowithout the slightest hesitation. Respondents Nos. 2, 3 and 4 themselves took the initiative and made offers for setting up factories for manufacture of rosin and turpentine derivatives provided they were assured definite supply of oleo resin every year and ultimately, as a result of negotiations which took place between them and the State Government, they were given licence for setting up their factories and assured supply of oleo resin was guaranteed to them for the purpose of feeding their factories. There was nothing to prevent the petitioners and others from making similar offers in time. But, in any event, even if the petitioners and others had made offers, it was for the State Government to decide whether their offers should be accepted or not. It is true that no advertisements were issued by the State Government inviting tenders for setting up factories for manufacture of rosin and turpentine derivatives or stating that assured supply of oleo resin would be guaranteed to any party who is prepared to put up a factory for manufacture of rosin and turpentine derivatives within the State. But, that cannot have any invalidating effect on the decision of the State Government to allow respondents Nos. 2, 3 and 4 to set up factories and to guarantee assured supply of oleo resin to them for feeding their factories. We may point out that a similar argument was advanced on behalf of petitioners in M/s. Kasturi Lal Lakshmi Reddy's case, supra, where a tapping contract was given to respondent 2 in that case and what we said in our judgment in that case applies with equal force to the situation in the present case:

'. . . But it must be remembered that it was not a tapping contract simpliciter which was being given by the State. The tapping contract was being given by way of allocation of raw material for feeding the factory to be set up by the 2nd respondents. The predominant purpose of the transaction was to ensure setting up of a factory by the 2nd respondent as part of the process of industrialisation of the State and since the 2nd respondent wanted assurance of a definite supply of resin as a condition of putting up the factory, the State awarded the tapping contract to the 2nd respondents for that purpose. If the State were giving tapping contract simpliciter there can be no doubt that the State would have to auction or invite tenders for securing the highest price, subject, of course, to any other relevant overriding considerations of public weal or interest, but in a case like this where the State is allocating resources such as water, power, raw materials etc., for the purpose of encouraging setting up of industries within the State, we do not think the State is bound to advertise and tell the people that it wants a particular industry to be set up within the State and invite those interested to come up with proposals for the purpose. The State may choose to do so if it thinks fit and in a given situation it may even turn out to be advantageous for the State to do so, but if any private party comesbefore the State and offers to set up an industry, the State would not be committing breach of any constitutional or legal obligation if it negotiates with such party and agrees to provide resources and other facilities for the purpose of setting up the industry. The State is not obliged to tell such party; 'Please wait, I will first advertise, see whether any other offers are forthcoming and then after considering all offers, decide whether I should let you set up the industry'. It would be most unrealistic to insist on such a procedure, particularly in an area like Jammu and Kashmir which on account of historical, political and other reasons, is not yet industrially developed and where entrepreneurs have to be offered attractive terms in order to persuade them to set up an industry. The State must be free in such a case to negotiate with a private entrepreneur with a view to inducing him to set up an industry within the State and if the State enters into a contract with such entrepreneurs for providing resources and other facilities for setting up an industry the contract cannot be assailed as invalid so long as the State had acted bona fide, reasonably and in public interest'.

Here in the present case there is nothing at all to show that the State acted mala fide or out of improper or corrupt motive or in order to promote the private interest of someone at the cost of the State. We are clearly of the view that the three impugned orders do not suffer from any infirmity and they cannot be assailed as invalid'.

41. In Shri Sachidanand Pandey's case, supra, Supreme Court again while reiterating the view expressed in M/s. Kasturi Lal Lakshmi Reddy's case, supra, upheld the transfer of land to Taj Group of Hotels on lease for construction of Five Star Hotel on the basis of discussions and negotiations without issuing advertisement or inviting tenders. It was held:

'On a consideration of the relevant cases cited at the bar the following propositions may be taken as well established: State-owned or public-owned property is not to be dealt with at the absolute discretion of the executive. Certain precepts and principles have to be observed. Public interest is the paramount consideration. One 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 as important as doing justice. Nothing should be done which gives an appearance of bias, jobbery or nepotism'.

42. In all these cases it has been held that it is not a 'must' for the State Government to issue an advertisement or invite tenders whileproviding resources or other facilities for setting up an industry or other infrastructures. It is not an invariable rule; in a given case if the public interest so requires a contract can be entered into without floating the tenders. The contract would not be assailable as invalid so long as the State has acted bona fide, reasonable and in public interest. In the present case Government entered into an agreement with respondent 2 who had come forward with a proposal to construct Bangalore Mysore Infrastructure Corridor Project without inviting tenders. Can the agreement be held to be arbitrary only because the Government failed to invite tenders to float global tenders? Was the agreement entered in a clandestine manner without making it public to the other competing claimants?

43. The agreement has to be examined on the touchstone of the principles laid down by the Supreme Court in the aforesaid judgments. The proposal was first mooted in the year 1988 to provide an Expressway between Bangalore and Mysore. The project report was prepared on the concept of executing work through private entrepreneurs to meet their expenditure, maintenance etc., by collection of tolls. Though tenders were called for in tender forms, only one entrepreneur offered a proposal.

There were considerable conditions and they also desired that the cost of land acquisition should be borne by the Government and other approach road should not be improved by the Government. As this was not possible, the proposal was kept in abeyance for some time. When the proposal of Development of Bangalore City as Mega City was taken, it was proposed to take some of the towns around Bangalore as counter magnets to Bangalore City in this scheme, provision of an Expressway between Bangalore Mysore was also considered. An investigation was again taken up by the Asian Development Bank. It was suggested that the State Government has to bear about 20% of the expenditure of the project and the land was to be acquired at the expense of the State. The State did not have sufficient funds to do so and therefore was considering the possibility of getting the Expressway constructed on the basis of BOOT concept. In the year 1995 Governor of Massachusetts State during his visit to India and discussions with Chief Minister of Karnataka on 20th February, 1995. A Memorandum of understanding was entered with consortium of M/s. Vanasse Hangen Brustlin Inc. and S.A.B. Engineering and Construction Inc., USA and M/s. Kalyani Group Limited, in the presence of Governor of Massachusetts and Chief Minister of Karnataka. Under this MOU the Consortium was to conduct a preliminary investigation economic survey etc., for the Expressway between Mysore and Bangalore and submit preliminary project report to the Government and if this project is economically feasible, then the Government to take further action. The project report was submitted. A High Level Committee was constituted consisting of high officials of the Government to consider the project report. The project report submitted was examined by the High Level Committee. After examining the same and being satisfied regarding the economic and technical feasibility of the project made recommendations to the Chief Minister for consideration. ChiefMinister along with his Ministerial Colleagues considered the same and recommended that this report be brought before the cabinet. Under the Scheme Project was to be constructed completely by the entrepreneurs with their own resources and keeping with them for thirty years to get their return of the expenditure profit etc., through collection of tolls. No State finances were involved. Respondent 2 came forward to set up the project for construction of an Expressway land. It was not necessary for the State Government to invite tenders or global tenders for constructing the Expressway. As was observed by the Supreme Court in Brij Bhushan's case, supra, that the State was not obliged under those circumstances to say:

'Please wait, I will first advertise, see whether any other offers are forthcoming and then after considering all offers, decide whether I should let you setup the industry'.

It would have been unrealistic to insist on such a procedure. No competitors or any other person has come forward to take up such a project. There is nothing at all to show that the State had acted mala fide out of improper or corrupt motive to protect the interest of another person at the cost of State. It acted to achieve public purpose of rapid economic growth of the area in particular and the State in general. The contract was not entered into dispose of or fritter away the assets or for augmenting the revenue as is alleged to have been done.

44. There is no favouritism or arbitrariness involved as from the beginning the policy was one of entrustment to a private organisation on the basis of BOOT concept. Having regard to the nature and magnitude of the project and the response to the earlier tenders called for in the year 1988 by way of conditional offer, it was open to the Government to explore alternative possibilities, for implementing its policy decisions. It is not necessary that in every work entrusted to private agency by the State, tender should be called for execution of the work and global tenders should have been called for by the Government before entering into an agreement with the second respondent. Having regard to the nature of work involved and other relevant factors including the financing of the entire project by the agency itself, the Government was justified in entering into an agreement with respondent 2 for executing the project instead of calling for the global tenders.

45. For these reasons, the agreement at Annexure-A cannot be held to be invalid only because State did not invite global tenders.

46. The submission that the contract was entered in a clandestine manner also cannot be accepted because the memorandum of understanding dated 20th February, 1995 makes it clear that the discussions were held with the Governor of Massachusetts, USA, by the then Chief Minister of Karnataka, the details of discussion, setting up of High Level Committee by the Government, receipt of project report in August 1995, the decision of the cabinet and the acknowledgement of the Government of Karnataka on 9-9-1995, of company's rights on behalf of the Consortium, are all matters of public record. High Level Committee constituted to examine the proposal consisted of very senior officers ofthe State. After examining the proposal High Level Committee submitted it to the Chief Minister who then put it before the Sub-Committee of the Cabinet consisting of Minister of Finance, Revenue, Home, Public Works, Major and Medium Industries and Major Irrigation and the High Level Committee Members and other concerned officers. After approval by the Sub-Committee, the matter was placed before the Cabinet and only thereafter the proposal was accepted. In paragraph 16 of the petition it has been averred that Sri H.K. Patil, Leader of the Opposition in the Legislative Council raised this issue in the State Assembly and pointed out the illegalities and disastrous consequences arising from the agreement and drew the attention of the Government and general public in the State in the country. Respondents in their statement of objections have admitted that this point was raised on the floor of the house and the respondent made detailed presentation on this subject in the house. Opportunity was given to the persons objecting for a detailed presentation and for clarification of the doubts and other information in the conference hall of Vidhana Soudha on 14-10-1997. During the presentation most of the members were present and actively participated in the debate. The Leader of the Opposition in the Council was also present during the presentation. Every minute detail was explained including the scientific method adopted by the respondent for identification of the land for the project. Once the point was raised in the legislature and discussed at length and if the same did not find favour with the legislature, then the Courts would be slow in terming it arbitrary unless it is opposed to public policy or the laws of the land. As the matter was discussed at various levels of the Government including the cabinet and the legislature, it cannot be held that the agreement entered into by the Government of Karnataka was entered in an arbitrary manner, in secrecy or in any way in a clandestine manner.

47. The next submission of the Counsel for the petitioner is that Government of Karnataka though ostensible purported to form an Express Highway has in reality allowed the 2nd respondent to develop the townships as a developer by conferring a huge largess by way of giving 20,000 acres of land and loss by way of losing the conversion fee for allowing the agricultural land to be used for non-agricultural purposes is to the extent of Rs. 400 crores apart from the other tax concessions and privileges allowed to it. According to him the power has been exercised in a colourable manner as it sought to unduly benefit the second respondent. Under the Karnataka Land Revenue Act, a sum of Rs. 20,000A has to be paid as fee for using the agricultural land for non- agricultural purpose. Multiplying the figure of 20,000 with 20,000 acres of land, the amount comes to Rs. 400 crores. According to petitioner, the land required for the construction of Four Lane Highway is only 2,775 acres, whereas the remaining land would be utilised for the purpose of development of the towns thereby permitting respondent 2 to develop townships as a developer and earn huge profits.

48. Government of Karnataka realising the ever increasing organisation problems and in order to see orderly development of Bangalore as a major residential city, in order to promote an integrated infrastructurecorridor, situated between Bangalore and Mysore consisted of residential, industrial and commercial facilities such as among other things, self sustaining townships, Expressways, utilities and amenities, including power plants, industrial plants, water treatment plants and other infrastructural developments, entered into the contract. Government was satisfied that the interests of the State of Karnataka would be best served if the infrastructure corridor is industrially and commercially developed as contemplated by the Infrastructure Corridor Project Technical Report, as such development would promote industrial, commercial and economic growth in the Karnataka State generally and in Bangalore in particular. It will create new job opportunities to the residents in and around the Infrastructure Corridor, promote, tourism, decongest traffic in Bangalore and Mysore and ensure smooth and safer traffic between Bangalore and Mysore and provide a world-class Expressway between them.

49. Attributing motive (not personal) to the Government that it had acted with mala fide intention in permitting respondent 2 to develop townships which are not required along the Toll Road is not justified. Experience has shown that all sorts of activities industrial, commercial, cultural and other such and similar activities tend to concentrate in one city which ultimately ends up in choking the system, resulting in shortages of essential elements required for good living like clean environment, water, electricity, clean air, roads, efficient transport system, open space and host of similar other things reducing the city to a big slum. Experiment of developing self-sufficient small cities with sufficient water, electricity, good environment along with the Toll Road as a Corridor Project, catering to the needs of the people living there as supporting cities to the big cities shall be a boon; helping the people living in big cities to lead a much better life. It would relieve congestion in the big cities. People living in the newly developed small towns in the Corridor Project would be getting the benefits of big city life without its disadvantages.

50. On factual aspects it may be clarified that in all 20,193 acres of land is required for the Toll Project, out of which the types of land to be acquired is: Kharab-7,558 acres, dry-10,817 acres, wet-1,662 acres, gar-den-156 acres, totalling to 20,193 acres. Conversion would be payable only regarding wet and the garden land and not the remaining land. Moreover, when once the land is acquired for public purpose under any enactment then the question of payment of conversion charges does not arise. The project of this magnitude could not have been executed by purchase of land by a private person. As of necessity land has to be acquired for the execution of such a project. Whenever the land is acquired compulsorily for a public purpose, then the person for whose benefit the land is acquired is not required to pay the conversion charges. Respondent 2 has not been singled out for this. No undue favouritism has been shown to it. It is being treated at par with other similarly situated persons or organisations for whose benefit the State acquires the land. Construction of Expressway between Bangalore Mysore is a public purpose, it cannot be held that it was incumbent upon the Government to charge conversion fees for converting the user of the land from agricultural to a non-agricultural purpose.

51. Under the project respondent 2 has to construct a 162 kms. of road requiring 6,999 acres, details of which are as follows:

1.

Expressway - 111kms. including interchanges toll plazas etc.

4,528 Acres;

2.

Peripheral road 41kms.

2,193 Acres;

3.

Link road 9.8 kms.

278 Acres,

Totalling6,999 Acres.

52. Expressway proposed to be constructed by second respondent consisted of peripheral road, link road and elevated road which will be completely grade separated with the interchanges, service and maintenance areas which require considerable extent of land. Initially, the road was a four-lane road with capacity to be converted into a six-lane road in future as a part of planning in advance for any further expansion in future. So out of 20,193 acres, land required for the Expressway would be 6,999 acres leaving 13,000 acres for development of townships. Government of Karnataka in its written statement has said that it has agreed to provide minimum extent of land for the project partly out of the land owned by the Government and by acquiring the balance. Permission has been given to develop the five township instead of 7, proposed by respondent 2 to make the project viable. It would help in reducing air, water and noise pollution in and around City by reducing the traffic congestion and developing the townships of this Highway so that cities of Bangalore and Mysore could be relieved of over population and in any case check the inflow of the shifting population to Bangalore and Mysore.

53. Argument contending that the agreement is vitiated by legal mala fides or by colourable exercise of power are misconceived. The existence of legal mala fides or colourable exercise of power implies that power has been exercised for a purpose other than that for which such power is conferred, meaning thereby that what was not permissible to do or within the power are sought to be achieved in the guise of doing something which is permissible and within the power of authority. In the case on hand it cannot be said that the Government has no power to create or make any new township within the State in addition to its power to create new roads etc. Since the power to build townships is within the power of the Government, there is no colourable exercise of power as alleged. No allegations of mala fide exercise of power by any person or persons in entering into an agreement with the second respondent is alleged in the writ petition. It is settled proposition of law that if a statutory authority exercises its power for a purpose not authorised by law, the action of the statutory authority is ultra vires and without jurisdiction. In R.S. Joshi v Ajit Mills Limited and Another, it was observed by their Lordships of the Supreme Court that a thing is colour-able which in appearance only and not in reality what it purports to be. If an authority is competent to pass a particular law then the motive which impels to pass the law are really irrelavent. In para 16, it was observed:

'Before scanning the decision to discover the principle laid down therein, we may dispose of the contention which has appealed to the High Court based on 'colourable device'. Certainly, this is a malignant expression and when flung with fatal effect at a representative instrumentality like the legislature, deserves serious reflection. If, forgetting comity, the legislative wing charges the judicative wing with 'colourable' judgments, it will be intolerably subversive of the rule of law. Therefore, we too must restrain ourselves from making this charge except in absolutely plain cases and pause to understand the import of the doctrine of colourable exercise of public power, especially legislative power. In this branch of law, 'colourable' is not 'tainted with bad faith or evil motive', it is not pejorative or crooked. Conceptually, 'colourability' is bound up with incompetency, 'Colour', according to Black's Legal Dictionary, is an appearance, semblance or simulacrum, as distinguished from that which is real. ... a deceptive appearance. .... a lack of reality. A thing is colourable which is, in appearance only and not in reality, what it purports to be. In Indian terms, it is maya. In the jurisprudence of power, colourable exercise of or fraud on legislative power or, more frightfully, fraud on the Constitution, are expressions which merely mean that the legislature is incompetent to enact a particular law although the label of competency is stuck on it, and then it is colourable legislation. It is very important to notice that if the legislature is competent to pass the particular law, the motives which impel it to pass the law are really irrelevant. To put it more relevantly to the case on hand, if a legislation, apparently enacted under one Entry in the List, falls in plain truth and fact, within the content, not of that entry but of one assigned to another legislature, it can be struck down as colourable even if the motive were most commendable. In other words, the letter of the law notwithstanding, what is the pith and substance of the Act? Does it fall within any entry assigned to that legislature in pith and substance, or as covered by the ancillary powers implied in that Entry? Can the legislation be read down reasonably to bring it within the legislature's constitutional powers? If these questions can be answered affirmatively, the law is valid. Malice or motive is beside the point, and it is not permissible to suggest parliamentary incompetence on the score of mala fides'.

Again in D.C. Wadhwa and Others v State of Bihar and Others, it was held:

'When the constitutional provision stipulates that an ordinance promulgated by the Governor to meet an emergent situation shall cease to be in operation at the expiration of six weeks from the reassembly of the legislature and the Government if it wishes the provisions of the ordinance to be continued in force beyond the period of six weeks has to go before the legislature which is the constitutional authority entrusted with the law making function, it would most certainly be a colourable exercise of power for the Government to ignore the legislature and to repromulgate the ordinance and thus to continue to regulate the life and liberty of the citizens through ordinance made by the Executive. Such a stratagem would be repugnant to the constitutional scheme, as it would enable the Executive to transgress its constitutional limitation in the matter of law making in an emergent situation and to covertly and indirectly arrogate to itself the law making function of the legislature'.

54. That a legislation is colourable when the legislature transfers its legislative power in a covert or indirect manner. The Government had the power to develop new township within the State in addition to its power to construct new roads etc. Since the power to build townships is within the power of the Government there could be no mala fide or colourable exercise of power as alleged.

55. The subject matter of the project falls under Entry 20 List III-which reads as Social and Economic Planning; Entry 13 List II-Communication and Entry 59 List-II-Tolls. Power to enter into contracts by the State for any purpose is conferred under Article 298 of the Constitution in addition to the power exercisable under Article 162.

56. Article 298 provides that the executive power of the State shall extend to the carrying on of any trade or business and to the acquisition, holding and disposal of property and the making of contracts for any purpose: provided such trade or business or such purpose is not one with respect to which Parliament may make laws, being subject to the legislation by the Parliament. The subject matter of the Project falls under Lists II and III and so far as List III is concerned there is no conflict in the laws made by the Parliament and the State Legislature. Article 162 provides that subject to the provisions of the Constitution the executive power of a State shall extend to the matters with respect to which the legislature of the State has power to make laws, provided that in any matter with respect to which the Legislature of State and Parliament have power to make laws, the Executive power of the State shall be subject to, and limited by, the executive power expressly conferred by this Constitution or by any law made by Parliament upon the Union or authorities thereof.

57. The Government has entered into an agreement at Annexure-A in exercise of its executive power to implement the policy decision to maintain social and economic development of the region. It is neither contrary to the legislative powers of the State nor beyond it. Respondent 2 is required to comply with all statutory rules and regulations in theexecution of the work. Respondent 2 is bound by the laws of the State. Wherever amendment was required to be made in the laws within the competence of the State, it has agreed to make amendments within the legislative competence of the State for the smooth execution of the project. Submission of the Counsel for the petitioner that executive has agreed to do certain acts for which there is no legislative sanction, cannot be accepted. Government has entered into contract relating to the items which fell within the legislative competence of the State Legislature and the executive power of the State extends to the legislative competence of the State Legislature. There is no need for every executive action to be backed up by the legislative sanctions. Every executive sanction is always subject to the legislative provision and Constitutional limitation. In Rai Sahib Ram Jawaya Kapur and Others v State of Punjab, a Constitution Bench of the Supreme Court held that the functions of a modern State like the Police State of old are not confined to mere collection of taxes or maintenance of laws and protection of the realm from external or internal enemies. A modern State is certainly expected to engage in all activities necessary for the promotion of the social and economic welfare of the community. Language of Article 162 clearly indicates that the power of the State executive extends to the matter upon which the State Legislature is competent to legislate and are not confined to matters over which legislation has been passed already. Every State action need not be backed by legislative sanction so long it does not go against the provision of the Constitution or any enacted law. In this case the State Legislature has agreed to amend the laws wherever necessary or enact such legislation which is within the Legislative competence of the State Legislature in order to facilitate due execution of the project. Submission of the Counsel for the petitioner that the Government has attempted to bind the legislation to pass certain enactments or amendments is misconceived. The contract only stipulates that the Government would make its 'best efforts' to get the necessary laws enacted or amendments carried out to achieve the purposes of the project. No clause of the agreement has been pointed out which purports to be opposed to any provisions of any of the existing laws or which cannot be provided for by an amendment to the existing law.

58. Agreement is neither illegal nor opposed to the public policy. Argument on behalf of the petitioner that the Government has bound itself to pass certain enactments or effect amendment in the existing Acts which are opposed to public policy are misconceived. The contract only stipulates that the Government would make its 'best efforts' to get the necessary laws enacted or amendments carried out to achieve the purposes of the project. The contract does not promise to do anything that is unlawful. The power of the legislature to enact laws within the sphere allotted to it under the different lists of the Seventh Schedule being plenary in nature, the clauses in the agreement cannot be construed to have the effect of binding the legislature which can reject theproposal of the executive to enact any law as agreed to by the Government. The legislature in its wisdom, can even nullify an agreement already entered into. 'Best efforts' as defined in the agreement in Clause 22.15 reads as under:

' 'Best efforts' means a commitment to pursue all legal avenues and conscientiously and diligently in order to accomplish the desired results. It is not a guarantee that the results will be reached but assures a procedure calculated to overcome known and foreseeable obstacles in a timely manner by exercising due diligence and good faith in an effort to accomplish the desired results'.

59. In various clauses of agreement where the State has given an undertaking regarding the enactment of laws or amendment of any existing laws within the competence of the State Legislature or to persuade the Central Government to do or not to do a particular act, it has undertaken only to make its 'best efforts'. As per the definition reproduced above 'best efforts' does not mean any commitment to get the work done, but only to make conscientious and diligent effort to get the desired results. It is not a guarantee that the results will be reached but assures a procedure calculated to overcome the known or foreseeable obstacles in a timely manner. The Government in its good faith has agreed to make its 'Best Efforts' to accomplish the desired result, but is not bound itself to achieve a particular object failing which to suffer any consequences.

60. Arguments of the Counsel for the petitioner that the project would create environmental pollution is again not sustainable because as per Clause 2.1.1. read with Schedule II to the agreement makes it clear that Company has to receive the required permissions, approval, sanctions and/or licences under the following Acts and Rules of Government of India and Government of Karnataka:

1. Environment (Protection) Act, 1986.--Section 3(1) and Section 3(2)(v).2. Environment (Protection) Rules, 1986.-Rule 5(3)(a).3. Water (Prevention and Control of Pollution) Act, 1974.--Section 25.4. Air (Prevention and Control of Pollution) Act, 1981.--Section 21.5. Clearance and confirmation from GOK that the Land does not contain reserve under the Forest (Conservation) Act, 1980 - Section 44 and Section 28.6. Exemption under Section 20 of the Urban Land (Ceiling and Regulation) Act, for holding land in the site falling within the Urban Agglomerations.7. Declaration by Government of Karnataka under the appropriate Act and formation of Greenbelt.8. Karnataka Stamp Act, 1957 -- Section 9 in respect of stamp duty payable amounts secured any by mortgage deeds executed in connection with Infrastructure Corridor Project.9. Electricity (Supply) Act, 1948.10. Consent of the Telegraph Authority under Section 4 of the Indian Telegraph, 1985 and Part V of the Indian Telegraph Rules for the provision of telecommunication facilities.

61. It shows that as per agreement it is incumbent upon respondent 2 to obtain the required permission or sanction of licence under the enactment relating to environmental protection failing which they cannot carry on with the project. In view of Clause 2.1.1 read with Second Schedule the apprehension of the petitioner that the project would affect the environment of the area is not sustainable. Apart from this it is clear from the statement of objections filed by the respondents that out of 20,193 acres allocated for the entire project 7,558 acres is kharab and 10,817 is the dry land. The wet land and the garden land is approximately 1,800 acres. There is no forest land which is proposed to be utilised for the execution of the project. Contention that it will affect the Flora and Fauna and the wildlife in the Forest of the State of Karnataka is also not sustainable.

62. Contention of the Counsel for the petitioner is that the Government by giving an undertaking to respondent 2 to enact and amend the existing laws has bound the legislature by the agreement and therefore, the same is unconstitutional has already been dealt with in detail and found to be without substance. Reference was made to the covenants in Clauses 3.2, 3.3, 3.4 and 3.5 relating to the acquisition of land, enactment of Toll Authority Act, supply and transmission of power and the creation of township. In all these clauses the Government has agreed to make necessary laws wherever necessary and to amend the existing laws or to persuade the Government of India to the extent possible not to declare the Toll Road constructed by respondent 2 to be a National Highway. The word used in all these clauses to make 'best efforts'. 'Best efforts' has been defined in Clause 22.15 of the agreement and reproduced. As per 'best efforts' it has bound itself unequivocally. It has only agreed to make its sincere efforts to show good faith to pursuade the Central Government not to declare the Toll Road as a National Highway. In equity it is necessary to do so. The Toll Road would be built by respondent 2 out of its own funds and clause in agreement 'A' regarding recovery of its costs by owning and operating for 30 years would be defeated if it is declared a National Highway because then it would fall under the jurisdiction of Central Government. There is no illegality or unconstitutionality about this clause in the agreement.

63. Counsel for the petitioner then contended that authority given to respondent 2 to collect taxes in the nature of Toll from the users of the road is opposed to public policy; the collection of taxes being the sole prerogative of the State. A contract of the present nature giving authority to the agency interested in the construction of Expressway to collect Tolls is not opposed to Public Policy. Even the National Highways Acthas been amended by Act No. 26 of 1995. Section 8A has been inserted which reads:

'8A. Power of Central Government to enter into agreements for development and maintenance of National Highways.--(1) Notwithstanding anything contained in this Act, the Central Government may enter into an agreement with any person in relation to the development maintenance of the whole or any part of a National Highway.

(2) Notwithstanding anything contained in Section 7 the person referred to in sub-section (1) is entitled to collect and retain fees at such rate, for services or benefits rendered by him as the Central Government may, by notification in the Official Gazette, specify having regard to the expenditure involved in building, maintenance, management and operation of the whole or part of such National Highway, interest on the capital invested, reasonable return, the volume of traffic and the period of such agreement.

(3) A person referred to in sub-section (1) shall have powers to regulate and control the traffic in accordance with the provisions contained in Chapter VIII of the Motor Vehicles Act, 1988 on the National Highway forming subject-matter of such agreement for proper management thereof.

64. This also shows that the collection of Toll from the user of the road is not in the nature of a tax but for the use of the road which would be built by respondent 2 as per the agreement under BOOT concept which has been accepted as a matter of policy by the State Government to persuade the private operator to invest in the basic infrastructure of the State. State has accepted this policy to persuade the private agencies to participate in the developmental activities because of various reasons including that it is not possessed of sufficient finance for rapid economic development for investment in certain sectors like power, roads, telecommunications etc. Conferment of powers contemplated under Articles 6.2.6 and 6.2.8 enabling the Toll Authority to effectively exercise its powers to collect the Tolls is incidental to the exercise of its powers and functions under the Toll Authorities Act. It cannot be termed as empowering the company to levy taxes.

65. Contention of the Counsel for the petitioner that the Municipal Corporation/Committees or the panchayats have been debarred/have been deprived to levy taxes on the Toll Road or in the townships etc., is again not acceptable. Under our constitutional scheme local Government and authorities derive the power to levy taxes etc., only under grant of such a power to levy by the appropriate legislature. These bodies do not possess the power to levy taxes etc., independently of legislative sanction. This position has now been made explicit under Articles 243H and 243X of the Constitution of India. The legislature, in given cases, has the power to exempt the levy of taxes etc., by a local Government or Authority and Clause 3.3.4 providing that the Toll Road will be subject to only the jurisdiction of the laws of the State of Karnataka and not anylocal Government, cannot be held to be illegal; unconstitutional or opposed to public policy.

66. The provisions in the agreement at Clause 3.5 relating to the development of township has to be read along with Clause 7 of the agreement and in particular with the provisions of Article 7.5. relating to warrantees by the company. By Article 3.5, Government of Karnataka unconditionally and irrevocably grants to the Company a right and concession to develop the townships in any manner the company believes to be proper for the development of the township. Such development of the Townships shall be subject to the relevant rules and regulations under the Town Planning Act and such other Act as may be applicable and the approvals set forth in Article 7 of the agreement. Article 7.2 provides that the Government of Karnataka and the Company have agreed that respondent 2 shall have the right to operate the Townships. The Company and the Government of Karnataka shall enter into an agreement negotiated in good faith by each for the operation and maintenance and in accordance with applicable laws. Notwithstanding what is stated above, respondent 2 has agreed that on the first anniversary of the Township Completion Day the Company shall transfer the assets relating to the Townships set forth in Fifth Schedule and the right of way over the land that may be required with respect to such assets, but not including any ownership interest in any part of the land and shall assign the administration of such Townships to Government of Karnataka or its instrumentality on payment of Re. 1/- and thereafter the Government shall assume all obligations relating thereto and to the administration of the Townships. Under Article 7.5 the Company has given a warrantee to the Government of Karnataka that Company shall industrially and commercially develop the Township so as to promote the industry, trade, commerce and tourism in such Townships as intended by the Infrastructure Corridor Project. The developments in the Townships shall be when completed, comply in all material respect with all applicable laws of India. The Townships shall be developed using proven up-to-date practices which are consistent with applicable laws of India. A conjoint reading of Articles 3.5, 7.2 and 7.5 shows that the Government of Karnataka has not acted in any way to the detriment of the State or its people. Respondent 2 has been made liable to comply with all applicable laws of India and the Company has been bound to transfer to the Government the assets relating to the Townships given in Schedule 5 and the right of way over the land that may be required with respect to such assets. Thereafter, the administration of the Townships shall vest in the Government of Karnataka. The assets which are owned by the Company of course have to be retained by the Company because the same have been developed by them on payment of the market value of the land and for other infrastructural development of that particular Township.

67. Karnataka Industrial Areas Development Act has been amended by Karnataka Act 11 of 1992. Under this amendment, the industrial areas would include a township also. Industrial Areas Development Board which has the power under Section 13(2)(a) of the said Act to develop industrial areas, can under Section 14(h) of the Act enter intocontracts for the purposes of carrying its function of developing an industrial area. Under Section 17 of the Act, the Board is bound to follow and act upon the directions to be issued by the State Government.

68. For setting up of new industries from time to time in certain areas, the Government of India as well as the State Government have been granting certain concessions or holiday from payment of taxes under the various enactments. Power of the State to classify certain categories for granting exemption and concession from levy of taxes is too well recognised to require any comment. Concessions if any, have been given to respondent 2 for making huge investments in the infrastructure of the State for economic and rapid development of the State and cannot be termed to be arbitrary or conferment of special benefits on respondent 2 for any mala fide or extraneous considerations.

69. Counsel for the petitioner then contended that Government has given Police powers to respondent 2 as found in Article 6 of the agreement. Article 6 relates to the operation of the Tolls which provides that respondent 2 shall operate the Toll Road for its own account and, subject to applicable laws of India and the Toll Authority Charter and shall be entitled to retain all profits and income derived thereof. Article 6.2 provides that Company shall establish a subsidiary to operate the Toll Road and during the concession period in accordance with the Toll Authority Charter. It has been made subject to the limitations contained in Toll Authority Act and the Central Motor Vehicles Act and any other law applicable in India. It provides that the Toll Authority established by respondent 2 shall set and collect Tolls from vehicles using the Toll Roads. It has the authority to specify the type of vehicles that will be allowed to use the Toll Road and to take precautions regarding order, safety, security and the prevention and abetment of nuisances along the Toll Road. Apart from this it also provides that it shall have the power to remove a vehicle of any person who uses the road without paying the Toll tax and require that person to reimburse the Company for any expenses incurred in removing the vehicle to or to detain the same. Under Article 6.2.8, respondent 2 has been given the authority to detain, hold and exercise other security functions on the Toll Road, provided that any person detained and held is handed over to Government of Karnataka or local police. According to the Counsel Articles 6.2.6 and 6.2.8 gives police powers to respondent 2 which it could not do. Maintenance of law and order being the sole responsibility of the Government such a power could not be transferred to respondent 2. The argument is misconceived. The project is built on BOOT concept. The Toll Road to be built by respondent 2 is not a public property belonging to the Government. If any person has to use the road then he has to pay the Toll tax for using the road. If any person enters on the road without payment of Toll tax then the same will amount to trespass and respondent 2 has been authorised to remove the vehicle of such a person and detain, hold and exercise other security functions and recover from the person the amount of Toll tax money and expenses for removal of the vehicle and in addition to detain the person and hand him over to the State Government or the local police to be tried in accordance with law. It does notamount to handing over the police powers to respondent 2 as was sought to be contended by the Counsel for the petitioner. The Toll Road is built by respondent 2 with his own money and respondent 2 is entitled to charge money which is to be fixed with the approval of the Government from the user of the road and if anybody forcibly enters upon the Toll Road without payment of Toll tax money then the company has been authorised to recover from the defaulting person and remove his vehicle from the Toll Road and charge itself or to reimburse the same for the expenses incurred by it. Persons detained temporarily for trespassing the road have to be handed over to the Government or local police to be tried in accordance with law. Contention raised by the Counsel for the petitioner being devoid of merit is rejected.

70. Allegation that separate agreement entered by respondent 2 with the B.W.S & S.B. would diminish the supply of water to Bangalore City has been denied. Supply of untreated sewage water by B.W.S & S.B. to respondent 2 would not in any way affect or result in loss of supply of the sewage water for agriculture and industrial purpose. As on today sewage water being discharged into the Vrishabhavathy valley is 200 MLD, and other effluent discharged is 150 MLD, 84 MLD is expected to be added after the commissioning of the 4th Stage of Cauvery Water Supply Scheme. In order to utilise the huge amount of sewage water which is going waste and which cannot in any way be treated, has been agreed to be supplied by B.W.S & S.B. to respondent 2. It contemplates the establishment of a treatment plant by respondent 2 at its own expense. Question of causing loss to the State Exchequer does not arise as the secondary treated water is to be purchased by respondent 2 on the prices fixed by the Board from time to time. The question of causing loss in any way does not arise.

71. Counsel for the petitioner raised an argument by referring to Articles 18.3.2.1 and 18.3.2.2 wherein it is provided that in case of dispute between parties which cannot be settled in good faith in the first instance by mutual discussion or by an Expert then the same has to be referred for International Arbitration in accordance with the provisions of the UNCITRAL Rules at a place outside India i.e., in London, England or in mutually agreed place, is an attempt to opt out of the laws as applicable in India, thereby violating the Sovereign powers of the State, resulting in taking away the jurisdiction of the Indian Judiciary. It has been argued that the same is not in public interest and would cause huge loss to the State Exchequer. Again we do not find any substance in this submission.

72. Parliament of India has enacted Arbitration and Conciliation Act, 1996. This Act has been enacted to consolidate and enact the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto. The statement of objects and reasons as given in the Arbitration and Conciliation Bill, 1995, read as follows:

'The law on arbitration in India is at present substantially contained in three enactments, namely, the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. It is widely felt that the 1940 Act, which contains the general law of arbitration, has become outdated. The Law Commission of India, several representative bodies of trade and industry and experts in the field of arbitration have proposed amendments to this Act to make it more responsive to contemporary requirements. It is also recognised that our economic reforms may not become fully effective if the law dealing with settlement of both domestic and international commercial disputes remains out of tune with such reforms. Like arbitration, conciliation is also getting increasing worldwide recognition as an instrument for settlement of disputes. There is, however, no general law on the subject in India.

2. The United Nations Commission on International Trade Law (UNCITRAL) adopted in 1985 the Model Law on International Commercial Arbitration. The General Assembly of the United Nations has recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. The UNCITRAL also adopted in 1980 a set of Conciliation Rules. The General Assembly of the United Nations has recommended the use of these Rules in cases where the disputes arise in the context of international commercial relations and the parties seek amicable settlement of their disputes by recourse to conciliation. An important feature of the said UNCITRAL Model Law and Rules is that they have harmonised concepts on arbitration and conciliation of different legal systems of the world and thus contain provisions which are designed for universal application.

3. Though the said UNCITRAL Model Law and Rules are intended to deal with international commercial arbitration and conciliation, they could, with appropriate modifications serve as a model for legislation on domestic arbitration and conciliation. The present Bill seeks to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules.

4. The main objectives of the Bill are as under.-

(i) to comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation;

(ii) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration;

(iii) to provide that the arbitral Tribunal gives reasons for its arbitral award;

(iv) to ensure that the arbitral Tribunal remains within the limits of its jurisdiction;

(v) to minimise the supervisory role of Courts in the arbitral process;

(vi) to permit an arbitral Tribunal to use mediation, conciliation or other proceedings during the arbitral proceedings to encourage settlement of dispute;

(vii) to provide that every final arbitral award is enforced in the same manner as if it were a decree of the Court;

(viii) to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral Tribunal; and

(ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two International Conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award.

5. The Bill seeks to achieve the above objects'.

73. It states that the Act of 1940 which contained the General Law of Arbitration has become outdated. The law relating to Arbitration has been amended by bringing a new Arbitration Act while repealing the earlier one in response to the contemporary requirements which includes both domestic arbitration as well as international commercial disputes or enforcement of foreign arbitrary award. Parties can opt for international awards. Under Section 11 a person of any nationality can become an arbitrator. Under this Act parties can agree to a foreign award relating to international and commercial transactions and these awards have been made executable and parties can opt to abide by the UNCITRAL for enforcement of foreign arbitral award and to define the law relating to conciliation, taking into account the said UNCITRAL Model Law and Rules. Arbitration agreements are outside the purview of Section 28 of the Indian Contract Act. The choice of any arbitrator of any nationality, the place of arbitration and the procedure to be agreed upon for such arbitration cannot be said to be opposed to any public policy or legal provisions as the choice in respect of all the above matters is provided for under the Arbitration and Conciliation Act, 1996. The agreement stipulates that the award passed is a foreign award within the meaning of the laws in India. The award thus qualifies to be enforceable under Part II, Chapter I of the Arbitration and Conciliation Act, 1996.

74. It has not been shown that the right of any individual or group of individuals has been illegally affected by the execution of the agreement. It has not been shown that how the agreement results in illegally depriving of any rights of any individual or groups of individuals. The agreement could only be challenged on the ground that it is mala fide or arbitrary or opposed to public policy of the laws of the land which the petitioner has failed to show.

75. As we do not find ourselves in agreement with the contentions raised by the petitioners, question of holding a CBI enquiry for any act of omission or commission of respondent 2 does not arise.

76. For the reasons stated above, we do not find any merit in this petition and dismiss the same with no order as to costs.


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