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Shreeji Industries Vs. the State of Rajasthan - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtRajasthan High Court
Decided On
Case NumberS.B. Civil Writ Petition No. 1731/82
Judge
Reported in1982WLN(UC)489
AppellantShreeji Industries
RespondentThe State of Rajasthan
DispositionPetition dismissed
Cases ReferredRamana Dayaram Shetty v. The International Airport Authority of India
Excerpt:
.....on finding that the quality of products of the petitioner were sub-standard in view of the test report submitted by him, cannot be said to be unreasonable or against public interest.;(c) natural justice - dispute regarding violation of terms of agreement--state acting in exercise of powers--held, rules of natural justice do not apply.;the rules of natural justice have no application where the state or its officers act in exercise of powers which are governed exclusively by the terms of contract because in such cases the only question which arises is whether the action complained of is, or is not, in consonance with the terms of the agreement.;writ dismissed. - - the only question which normally arise in such cases is whether the action complained of is or is not in consonance with..........of goods was accepted and the petitioner executed an agreement and submitted the same before the state government thereafter, a circular (annexure p/3) no. 16/82 dated 16th march, 1981 was issued by the store purchase officer, central store purchase organisation, finance department of the government of rajasthan (respondent no. 2 herein ), whereby the name of the petitioner vyas included amongst the suppliers of polyethelene bags for a period upto 30th september, 1982. the rates were prescribed in a separate order no. 10/82 dated march 16, 1982. by order dated 24th august, 1982 passed by respondent no. 2, the circular no. 16/82 and the order 10/82 dated 16th march, 1982 whereby the rate contract for supply of polyethelene bags upto 30th september, 1982 had been given to the petitioner.....
Judgment:

S.C. Agrawal, J.

1. The petitioner in this writ petition filed under Article 226 of the Constitution of India, carries on business of manufacturing polyethelene bags. By public notice published in the Rajasthan Patrika, Jodhpur Edition, dated August 7, 1981, the State Government invited tenders for supply of polyethelene bags. In the tender the various requirements with regard to the physical and strength properties of the films used in the products were prescribed. In response to the said notice, the petitioner submitted his tender on 14th September, 1981. The petitioner also submitted a test report of his products obtained from M/s. I.P.C.L., Baroda. The tender of the petitioner for supply of goods was accepted and the petitioner executed an agreement and submitted the same before the State Government Thereafter, a Circular (Annexure P/3) No. 16/82 dated 16th March, 1981 was issued by the Store Purchase Officer, Central Store Purchase Organisation, Finance Department of the Government of Rajasthan (respondent no. 2 herein ), whereby the name of the petitioner vyas included amongst the suppliers of polyethelene bags for a period upto 30th September, 1982. The rates were prescribed in a separate order No. 10/82 dated March 16, 1982. By order dated 24th August, 1982 passed by respondent no. 2, the circular No. 16/82 and the order 10/82 dated 16th March, 1982 whereby the rate contract for supply of polyethelene bags upto 30th September, 1982 had been given to the petitioner was cancelled. In the said order, it is stated that on a re-examination by the technical committee of the test report submitted by the petitioner, it was found that the products of the petitioner were not satisfactory. Being aggrieved by the aforesaid order dated 24th August, 1982, the petitioner has filed this writ petition wherein the petitioner has prayed that a writ in the nature of certiorary may be issued to quash the order 24th August, 1982 and a writ in the nature of mandamus be issued directing the non-petitioners to accept the supply from the petitioner in terms of the agreement entered into between the petitioner and the non-petitioner uptil September 30, 1982.

2. In the writ petition aforesaid, the petitioner has submitted that the impugned order dated 24th August, 1982 has been passed in disregard of the principles of natural justice in as much as the petitioner was not afforded any opportunity of being heard before the passing of the said order. The case of the petitioner is that since the impugned order adversely affects the interests of the petitioner, it was incumbent upon the non-petitioners to have given an opportunity of a hearing to the petitioner before passing the said order. The case of the petitioner is further that the test report that was submitted by the petitioner had been examined by the technical committee before the tender of the petitioner was accepted and that the non petitioners were estopped from questioning the quality of the products of the petitioner on the basis of the second report received from the technical committee and that, in any event, the report of the technical committee should have been disclosed to the petitioner before taking any action against the petitioner on the basis of the said report.

3. A notice was issued to the non-petitioners requiring them to show cause as to why the writ petition should not be admitted & in response to the said notice, a reply has been filed on behalf of the non-petitioners. In the said it has been submitted that the tender for supply of polyethelene bags contained the specifications detailing the various sizes & minimum qualities qua the various strength requirements and other requirements and that there was big variance between the specifications as required in the tender & the specifications as mentioned in the test report submitted by the petitioner with regard to his products. In the said reply, it has been further submitted that the aforesaid difference between the specifications contained in the test report and the requirements prescribed in the tender was not noticed at the time when the tender of the petitioner was accepted and that subsequently while examining the representation of M/s. Anupam Products, whose tender had been rejected and who had claimed that their products were of the same quality as those of the petitioner, the test certificate submitted by the petitioner with regard to his products was re-examined by the technical committee and it was found that the products of the petitioner Wire not in conformity with the tender specifications and, therefore, the order dated 24th August, 1982 cancelling the agreement of the petitioner was passed. In the said reply it has been submitted that the rights of the petitioner are governed by the contract and that the principles of natural justice could not be invoked and that the writ petition filed by the petitioner was not maintainable. In this regard, it has also been submitted in the said reply that the second report of the technical committee was not required to be made available to the petitioner before cancelling the contract as in the said report all that was mentioned was that the specifications about the products of the petitioner as given in the test report submitted by the petitioner did not satisfy the tender specifications contained in the tender submitted by the petitioner. In the said reply, it has also been stated that condition no 29 of the conditions of tender which constitute the conditions of the contract, contains an arbitration clause which requires that for any dispute arising out of the contract with regard to the interpretation, meaning and breach of the terms of the contract, the matter shall be referred to by the parties to the Secretary to the Government in the Finance Department (Stores Purchase) whose decision shall be final and that he will be the sole arbitrator of the dispute not with standing with the fact that that the Secretary to the Government in the Finance Department (Store Purchase) is an officer of the Government of Rajasthan. It has been submitted that in view of the aforesaid arbitration clause, an alternative remedy of arbitration is available to the petitioner and the writ petition filed by the petitioner is not maintainable.

4. I have heard Shri J. P. Joshi, the learned Counsel for the petitioner and the learned Government Advocate.

5. Shri Joshi has submitted that the order dated 24th August, 1982 is an order passed by the State Government in exercise of its executive power and that it is settled law that the State, while exercising its executive power affecting citizens, cannot act arbitrarily and must act reasonably. According to Shri Joshi, the order dated 24th August, 1982 cannot be said to have been passed reasonably and was passed arbitrarily in as much as it was passed with out affording an opportunity of a hearing to the petitioner before taking the impugned action canceling the contract of the petitioner and further that the petitioner ought to have been supplied with a copy of the second report of the technical committee before any action was taken against the petitioner on the basis of the said report. In support of his aforesaid submission, Shri Joshi has placed reliance on the decision of the Supreme Court in M/s Kosturi Lal Lakshmi Reddy etc. v. State of Jammu and Kashmir : [1980]3SCR1338

6. The learned Government Advocate, on the other hand, has submitted that a distinction has to be drawn between an action of the State in the matter of entering into a contract and action of the State in terminating a contract already entered. According to the learned Government Advocate, the requirement of Article 14 of the Constitution could be invoked when the State enters into a contract with a particular person to the exclusion of others but once the contract has been entered into, the relationship between the State and the person with whom the contract has been entered is governed by the terms of the contract only and that the guarantee of equality contained in Article 14 can have no application and the principles of natural justice also cannot be invoked by the person whose contract is being cancelled. According to the learned Government Advocate, the remedy of a person who has entered into a contract with the State and whose contract is said to have wrongfully been cancelled by the State is to file a suit for damages for breach of contract or for arbitration if the contract so provides and that the jurisdiction under Article 226 of the Constitution cannot be invoked. In support of his aforesaid submission, the learned Government Advocate has placed reliance on the decision of the Supreme Court in Radhakrishna Agarwal v. State of Bihar : [1977]3SCR249 .

7. In Radhakrishna Agrawal's case : [1977]3SCR249 , the Supreme Court has observed that at the time of entry into the field of consideration of persons with whom the Government could contract the State is bound by the obligation of the State with the individual citizens import into every transaction entered into in exercise of its constitutional powers. But, after the State, or its agents, have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligations of the parties inter se & no question arises of violation of Article 14 or of any other constitutional provision when the State or its agent, purporting to act within this field, perform any act. The Supreme Court has further observed that in this sphere, they can only claim rights conferred upon them by the contract and are bound by the terms of the contract only unless some statute steps in and confers some special statutory power or obligation on the State in the contractual field which is apart from contract. The Supreme Court, after examining its earlier decisions, has laid down that in a case where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual and the rights and liabilities of the parties are governed by the terms of the contract, and one of the parties to the contract complains about breach of such contract by the State, no writ or order can be issued under Article 226 of the-Constitution to compel the authorities to remedy a breach of contract pure and simple. In the said case, the Supreme Court has also dealt with the question as to whether the action of the State in cancelling the contract can be open to challenge on the ground of disregard of the principles of natural justice and has observed as under:

Rules of natural justice are attached to the performance of certain functions regulated by statutes or rules made thereunder involving decisions affecting rights of pa ties. When a contract is sought to be terminated by the Officers of the State, purporting to act under the terms of an agreement between parties, such action is not taken in purported exercise of a statutory powa(sic) at all.

The limitations imposed, by rules of natural justice cannot operate upon powers which are governed by the terms of an agreement exclusively. The only question which normally arise in such cases is whether the action complained of is or is not in consonance with the terms of the agreement.

8. In M/s. Kasturi Lal Lakshmi Reddy's case (1). the Supreme Court was dealing with a case relating to a grant of a contract by the State Government and the Supreme Court, while reiterating its observations in Ramana Dayaram Shetty v. The International Airport Authority of India : (1979)IILLJ217SC has observed that the government is not free to act as it likes in granting largesse such as awarding a contract or selling or leasing out its property and that if the Government awards a contract or leases out or otherwise deals with its property or grants any other largesse, it would be liable to be tested for its validity on the touch-stone of reasonableness and public interest and if it fails to satisfy either test, it would be unconstitutional and invalid.

9. It would, thus, be seen that the decision in Kasturi Lal's case (1) does not in any way detract from the law Laid down in Radhakrishna Agrawal's case (2). The aforesaid decisions show that a distinction has to be drawn between the action of the State in the matter of awarding a contract and the action of the State or its officers in taking any action after the contract has been entered. In so far as the action of the State in the matter of awarding a contract is concerned, the State and its officers are bound by the obligations which dealings of the State with the individual citizens import into every transaction entered into in exercise of its constitutional powers and the validity of the action has to be decided on the touch-stone of reasonableness and public interest. But once the contract has been entered info(sic) any action is taken thereafter the said action would be governed by the terms of the contract only unless some statute steps in and offers some special statutory power or obligation on the State. If no statutory obligation is imposed on the State then the action of the State or its officers is governed purely by the terms of the contract and in such a case, the remedy under Article 226 of the Constitution cannot be invoked and the only remedy that is available is to enforce the contract by instituting a civil suit or by resorting to arbitration, if so provided in the contract. The aforesaid decisions also show that the principles of natural justice can have no application to the exercise of powers which are governed by the terms of the contract exclusively.

10. In the present case, it is not claimed by the petitioner that apart from the terms of the contract any special obligation has been imposed on the State by a statute and there has been disregard of the said obligation by the State in the matter of passing the impugned order. This is a case where the contract that was entered into by the State and the petitioner was non statutory and the rights and liabilities of the parties were governed by the terms of the contract only. The petitioner claims that the said contract has been unlawfully terminated by the State by order dated 24th August, 1982. In such a case, the remedy that was available to the petitioner was to institute a civil suit or seek arbitration as contemplated under Clause 29 of the conditions of the tender which constitute the conditions of the contract and the petitioner cannot invoke the jurisdictions of this Court under Article 226 of the Constitution to challenge the validity of the order dated 24th August, 1982 cancelling the said contract.

11. Even it be assumed that the action of the State of its officers cancelling the contract is liable to be tested on the touch-stone or reasonableness and public interest, I am of the opinion that in the facts and circumstances of the case, the order dated 24th August, 1982 cancelling the contract of the petitioner satisfies the aforesaid test. The tender (Annexure R/1) submitted by the petitioner contained a Schedule of specifications specifying the requirements with regard to the physical and strength properties of films to be used in the polyethelene bags. The said requirements related to yield tolerance, tensile strength at break, elongation at break, impact resistance and slip. A comparison of the figures given in the test report (Annexure R/2) submitted by the petitioner with regard to his products and the specifications as contained in the tender (Annexure R/1) submitted by the petitioner would show that the products of the petitioner did not satisfy the required specifications with regard to the impact strength, slip (co-efficient of friction) and tolerance. In other words, the products of the petitioner did not conform to the requirements of the tender. Merely because a mistake had been committed at the time of acceptance of the tender of the petitioner and this discrepancy between the specifications contained in the tender and the test report submitted by the petitioner was not noticed at that time, would not preclude the Government and its officers from correcting the said mistake when it came to their notice while examining the representation submitted by M/s. Anupam Products whose tender had been rejected on the ground that their products were Sub-standard. The action of the non-petitioners in cancelling the contract of the petitioner on finding that the quality of products of the petitioner were Sub-standard in view of the test report submitted by him, cannot be said to be unreasonable or against public interest.

12. In so far as the non-compliance of rules of natural justice is concerned, it has already been pointed out that the rules of natural justice have no application where the State or its officers act in exercise of powers which are governed exclusively by the terms of contract because in such cases the only question which arises is whether the action complained of is, or is, not, in consonance with the terms of the agreement. Moreover in the facts and circumstances of the present case, it cannot be said that there has been any violation of the principles of natural justice in the matter of passing the order dated 24th August, 1982 cancelling the contract of the petitioner. The aforesaid order dated 24th August, 1982 is based on the ground that while accepting the tender of the petitioner and awarding the contract to him, a mistake had been committed and the discrepancy between the specifications contained in the tender and the test report submitted by the petitioner which showed that the products of the petitioner were substandard, was not noticed. The said error is apparent from the documents, namely, the tender (Annexure R/1) and the test report (Annexure R/2), which had been submitted by the petitioner himself. If on a examination of the aforesaid two documents, the technical committee notices the error at a subsequent stage and recommends that the products of the petitioner were of Sub-standard, the non-petitioners were justified in taking appropriate action and the said action taken by the non-petitioner cannot be challenged on the ground it was passed in violation of the principles of natural justice.

13. For the preasons aforesaid, I find no merit in this writ petition and it is, accordingly, dismissed. There will be no order as to costs.


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