THE HON’BLE SRI JUSTICE SANJAY KUMAR WRIT PETITION NO.9897 OF 2010 DATED JULY, 2010 BETWEEN The Venkateswara Boats Men Sand Quarry & Labour Contract Co-operative Society Ltd., No.535, F, Narsapur, West Godavari District, Rep. by its President Sri Bh.V.V.Satyanarayana, 5th Ward, Narsapur, West Godavari District. … Petitioner And The Government of Andhra Pradesh, Rep. by its Secretary, Panchayat Raj and Rural Development, Secretariat, Hyderabad. And Others … Respondents THE HON’BLE SRI JUSTICE SANJAY KUMAR WRIT PETITION NO.9897 OF 2010 ORDER: The petitioner society assails the proceedings dated 22.04.2010 of the Zilla Praja Parishad, West Godavari District, the third respondent, whereby it accepted the proposal of the District Collector, West Godavari, for grant of the lease of toll collection of Madhavaipalem Ferry for the year 2010-11 in favour of the fifth respondent society. The petitioner society sought a consequential direction to the authorities to allot the said lease to it as it was the highest bidder. The Mandal Development Officer, Narsapur Mandal, West Godavari, issued notification dated 07.01.2010 in the first instance calling for tenders for awarding the subject lease. The upset price was fixed at Rs.79,00,000/-. Due to the failure of this and the next tender notice owing to lack of participation in the auction, a fresh tender notification was issued on 05.03.2010 fixing the upset price at Rs.74,12,000/-. The petitioner society and five others are said to have responded to this notification but no auction was held on the stipulated date, 17.03.2010, as none of the bidders matched the upset price. Thereupon, the Mandal Development Officer, Narsapur, is said to have informed the third respondent and in consequence, telegrams were issued by the third respondent to all the tenderers calling them for negotiations on 30.03.2010. Pursuant thereto, negotiations were held with the tenderers and the petitioner society claims to have offered the highest bid at Rs.69,01,000/-. These negotiations are said to have been recorded by the Deputy Chief Executive Officer of the third respondent in the presence of the Mandal Development Officer, Narsapur. While matters stood thus, the subject lease was awarded to the fifth respondent society vide the impugned proceedings dated 22.04.2010. Hence, this writ petition. By order dated 28.04.2010, this Court granted interim suspension of the impugned proceedings. It is the case of the petitioner society that the grant of the subject lease in favour of the fifth respondent is a colourable exercise of power and is in blatant violation of the rules and regulations. It is pointed out that the fifth respondent society did not even respond to the tender notifications issued earlier and out of the blue, it had been picked up for this award of State largesse. Reference is made to the Circular dated 24.03.1999 issued by the Commissioner, Panchayat Raj and Rural Development, Government of Andhra Pradesh, specifying the guidelines to be followed with regard to auction of Ferry leases. In his counter, the Chief Executive Officer of the third respondent referred to the earlier tender notification dated 07.01.2010 and stated that six persons including the petitioner society had purchased the tender schedules but failed to participate in the auction. Thereupon, the second tender notification was issued on 11.02.2010 but the same also met with failure as only one person purchased the tender schedule but failed to match the upset price. The third tender notification dated 05.03.2010 was issued and in response to the same, the petitioner society and five others participated but again failed to match the upset price. Relevant to note, no reference is made in the counter to the invitation to the tenderers to attend the negotiations on 30.03.2010 nor is there any mention of what transpired in the said negotiations. This studied silence on the part of the third respondent is of significance as the petitioner society not only made specific averments in this regard in the writ affidavit but also filed a copy of the telegram issued to it to participate in the said negotiations. Be that as it may, the counter goes on to state that the matter was discussed with the Collector, West Godavari, and it was decided to award the lease to the fifth respondent society which had come forward with an offer of Rs.69,00,000/-. Pertinent to note, as per the petitioner’s averments it had offered Rs.69,01,000/-, i.e., a little more than what was offered by the fifth respondent society. It is further stated that the Collector, West Godavari, cancelled the tenders as the tenderers had formed into a syndicate to see that the bid does not cross Rs.62,00,000/-. This statement runs contra to what was stated in the counter in the earlier paragraphs where it was admitted that the petitioner society had quoted Rs.68,00,100/- in response to the third tender notification dated 05.03.2010. According to the Chief Executive Officer, this situation was explained in the Standing Committee Meeting of the third respondent which was held on 17.04.2010 and thereupon, the resolution was passed to accept the decision of the Collector, West Godavari, to award the lease to the fifth respondent society. In its counter the fifth respondent society echoed the averments made by the Zilla Praja Parishad, West Godavari, in its counter. It was further stated that the lease had been issued to it as it was a local Fishermen society and as no other society had come forward to pay more than Rs.69,00,000/- per year towards the lease. Reference is made to sub-section (b) of Section 10(1) of the Andhra Pradesh (Andhra Area) Canals and Public Ferries Act, 1890, to justify the grant of lease by nomination. It is further stated that the fifth respondent society entered into an agreement on 22.04.2010 pursuant to the grant of lease and made advance payment of one month’s rent on that day. Claiming to be adversely affected by the interim suspension of the impugned proceedings, the fifth respondent society sought vacation of the said order. This vacate petition was filed on 17.05.2010. While so, the petitioner society moved W.P.M.P. No.16056 of 2010 in this writ petition on 07.06.2010 stating that pursuant to the interim suspension of the proceedings impugned herein, the operational rights of the Ferry had been allotted by the authorities to o n e A.Chiranjeevi, President of Valluru Fishermen Co-operative Society, under proceedings dated 22.05.2010 on a monthly rental of Rs.5,75,067/-. It is alleged that the said person is a stooge and the fifth respondent society is continuing to operate the leasehold rights as evidenced by the tickets issued to the users of the Ferry. The petitioner society stated that it was willing to offer Rs.6,17,000/- per month or participate in a public auction for fresh lease of the operational rights. The petitioner society therefore gave up its claim for the consequential relief that it had sought in the writ petition with regard to the grant of lease in its favour basing on its highest bid during the negotiations. The petitioner society now seeks a direction to the authorities either to conduct a fresh auction for leasing out the operational rights of Madhavaipalem Ferry for the year 2010-11 or in the alternative, to grant it the said lease on a monthly rental of Rs.6,17,000/-. No counter affidavit has been filed by either of the contesting respondents in response to this application. Heard Sri K.Chidambaram, learned counsel for the petitioner society, Sri E.V.S.S.Acharyulu, learned counsel for the fifth respondent society and Sri M.Prabhakar Rao, learned counsel for the third respondent. Though the matter is listed for hearing on the interlocutory applications, in the light of the facts obtaining, the writ petition itself is being disposed of by this order. Though Sri E.V.S.S.Acharyulu, learned counsel for the fifth respondent, requested that the order be limited to the vacate petition, I am not impressed with such a prayer. The petitioner alleges that the person presently operating the subject leasehold rights is a stooge of the fifth respondent which may or may not be true, but the circumstances of the case clearly demonstrate that public interest is being denied primacy in so far as award of the lease is concerned. Therefore, the matter requires final adjudication at this stage so as to further public interest and fair play in action. The authorities are empowered by statute to grant the leasehold rights with regard to collection of toll for operating Madhavaipalem Ferry. Section 10(1)(b) of the Andhra Pradesh (Andhra Area) Canals and Public Ferries Act, 1890 is as under: “10. Power to provide for management of ferries and fix fees and rates of tolls.- (1) The State Government may— (a) …………. ( b ) authorize any person to convey passengers, animals, vehicles or goods across a channel by means of vessels at any public ferry, or ………….” Necessarily, such authorization or grant must be in accordance with the due procedure, free from arbitrariness and nepotism. The circular instructions dated 24.03.2010 issued by the authorities reflect the same ideology. It is stipulated therein that the right of collecting fees for the use of any public Ferry shall be disposed of following the Auction-cum-Tender System prescribed under the said guidelines. This Circular adumbrates the procedure to be followed in this regard with regard to the fixation of the upset price, causing of the public notification in newspapers, conduct of the auction, etc. Nothing in these guidelines authorizes the authorities to deviate from this procedure and opt for grant of lease by way of a nomination. Decisions galore rendered by the Courts of the land have crystallized the principle that the State cannot act arbitrarily in the matter of distribution of State largesse. Such distribution necessarily has to be free of arbitrariness, illegality and must conform to the set standards of transparency and fairness. Reference in this regard may be made to the observations of the Supreme Court in RAMANA DAYARAM SHETTY v. INTERNATIONAL AIRPORT AUTHORITY OF INDIA[1]: “10. …… Today with tremendous expansion of welfare and social service functions, increasing control of material and economic resources and large scale assumption of industrial and commercial activities by the State, the power of the executive Government to affect the lives of the people is steadily growing. The attainment of socio-economic justice being a conscious end of State policy, there is a vast and inevitable increase in the frequency with which ordinary citizens come into relationship of direct encounter with State power- holders. This renders it necessary to structure and restrict the power of the executive Government so as to prevent its arbitrary application or exercise. Whatever be the concept of the Rule of Law, whether it be the meaning given by Dicey in his “The Law of the Constitution” or the definition given by Hayek in his “Road to Serfdom” and “Constitution of Liberty” or the exposition set forth by Harry Jones in his “The Rule of Law and the Welfare State”, there is as pointed out by Mathew, J., in his article on “The Welfare State, Rule of Law and Natural Justice” in “Democracy, Equality and Freedom” [Upendra Baxi, Ed. : Eastern Book Co., Lucknow (1978) p. 28] “substantial agreement in juristic thought that the great purpose of the rule of law notion is the protection of the individual against arbitrary exercise of power, wherever it is found”. It is indeed unthinkable that in a democracy governed by the rule of law the executive Government or any of its officers should possess arbitrary power over the interests of the individual. Every action of the executive Government must be informed with reason and should be free from arbitrariness. That is the very essence of the rule of law and its bare minimal requirement. And to the application of this principle it makes no difference whether the exercise of the power involves affectation of some right or denial of some privilege.” Again in SACHIDANAND PANDEY v. STATE OF WEST BENGAL[2], the Supreme Court stated: “40. 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.” Therefore, the action of the Zilla Praja Parishad, West Godavari, in conferring the subject leasehold rights must necessarily pass the test of being transparent and above board in all respects to withstand judicial scrutiny. The subject grant is however woefully deficient in this regard. The facts aforestated demonstrate that the tenderers who responded to the third tender notification dated 05.03.2010 were called for negotiations. The stoic silence of the Zilla Praja Parishad in its counter in so far as this aspect is concerned leaves this Court with no option but to accept that the petitioner’s averments in this regard are uncontroverted because of their veracity. It must therefore be accepted that the petitioner society offered Rs.69,01,000/- in these negotiations and notwithstanding the same, the authorities opted for the grant of leasehold rights by way of nomination at a lesser price. No explanation is forthcoming as to why the fifth respondent society was chosen. Pertinent to note, the said society did not even respond to any of the tender notifications issued earlier for auction of these leasehold rights. Further, the discrepancies in the counter with regard to the amounts offered in response to the earlier notifications also leaves no room to doubt the petitioner’s averments that it had, in fact, offered more than Rs.62,00,000/- even earlier. Such being the case, the decision of the authorities to confer the lease upon the fifth respondent society is fraught with legal infirmity and falls far short of the standards expected of the State in matters of this nature. Sri E.V.S.S.Acharyulu, learned counsel, placed reliance on a catena of decisions to support his case. I n TATA CELLULAR v. UNION OF INDIA[3], the Supreme Court dealt with the aspects which are to be considered by the Courts in the matter of acceptance or refusal of tenders. It was observed that it is not for the Court to determine whether a particular policy or a particular decision is fair and the Court 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. According to the Supreme Court, 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.” This Judgment is of no avail to the fifth respondent society as it does not lay down any discernible principle departing from the view consistently taken by the Courts that the process of distribution of State largesse must meet the standards of transparency and fairness. I n ASIA FOUNDATION & CONSTRUCTION LTD. v. TRAFALGAR HOUSE CONSTRUCTION (I) LTD.[4], the scope of judicial review in the matter of acceptance of tenders was again in focus. The matter turned upon the Court interfering with a particular policy and whether a particular decision taken in fulfillment of that policy was fair. The observations of the Supreme Court, reiterating the well settled principle that fairness and transparency are the guiding norms in grant of State largesse, are: “10. Therefore, though the principle of judicial review cannot be denied so far as exercise of contractual powers of government bodies are concerned, but it is intended to prevent arbitrariness or favouritism and it is exercised in the larger public interest or if it is brought to the notice of the court that in the matter of award of a contract power has been exercised for any collateral purpose.” I n RAUNAQ INTERNATIONAL LTD. v. I.V.R. CONSTRUCTION LTD.[5], the Supreme Court was dealing with the grant of interim orders in commercial matters and the necessity to ascertain whether an element of public law or public interest was involved therein. The Supreme Court observed that the Court must weigh the competing public interest to find if there is an overwhelming public interest as against the public detriment in granting such stay orders. This Judgment is not helpful to the cause of the fifth respondent society. I n KANHAIYA LAL AGRAWAL v. UNION OF INDIA[6], the Supreme Court observed that Courts would normally be reluctant to intervene in matters of contracts entered into by the Government, but if the same are found to be unreasonable, arbitrary, mala fide or in disregard of mandatory procedures, the Courts would not hesitate to nullify or rectify such actions. This Judgment reiterates the settled principle and is of no help to the fifth respondent society. In UNION OF INDIA v. M/S.LAXMI BUILDERS[7], a Division Bench of this Court was dealing with the validity of tender conditions, which is not the issue in the present case. This Judgment is therefore of no relevance. I n TRIMEX INDUSTRIES LTD. v. A.P.MINERAL DEVELOPMENT CORPORATION LTD.[8], a learned Judge of this Court held that administrative action in award of contracts by a public authority would not be interfered with unless it was violative of Article 14 of the Constitution. In the present case, the grant of leasehold rights being tainted with arbitrariness falls foul of the enshrined principles of Article 14 of the Constitution. Thus, this case also does not fortify the contentions put forth by the fifth respondent society. Again in SRI HARSHA COSNTRUCTIONS v. UNION OF INDIA[9], a learned Judge of this Court held that the Court’s interference in contractual matters was warranted where it prevented arbitrariness or favouritism and protected larger public interest. That being the case presently, this Judgment does not facilitate the case of the fifth respondent society. Viewed thus, the grant of the subject leasehold rights in favour of the fifth respondent society by the Zilla Praja Parishad, West Godavari, without following any procedure or norm known to law, reeks of arbitrary exercise of power and cannot be sustained. The Writ Petition is accordingly allowed holding that the proceedings dated 22.04.2010 of the Zilla Praja Parishad, West Godavari, granting leasehold rights in favour of the fifth respondent society for collecting the toll of Madhavaipalem Ferry, Narsapur, for the year 2010-11, are illegal and consequently setting aside the same. The respondent authorities are directed to conduct a public auction afresh in accordance with law and as per the Circular guidelines/instructions dated 24.03.1999 for grant of the subject leasehold rights for the remaining part of the contract period. This exercise shall be completed within a period of four (4) weeks from the date of receipt of a copy of this order. In the circumstances of the case, there shall be no order as to costs. ____________________ SANJAY KUMAR, J. _________ JULY, 2010. VGSR [1] (1979) 3 SCC 489 = AIR 1979 SC 1628 [2] (1987) 2 SCC 295 = AIR 1987 SC 1109 [3] AIR 1996 SC 11 [4] (1997) 1 SCC 738 [5] (1999) 1 SCC 492 [6] AIR 2002 SC 2766 [7] 2003 (3) ALT 1 (DB) [8] 2006 (1) ALT 150 [9] 2008 (5) ALT 557