Case: Allana Cold Storage Limited Vs. Goa Meat Complex Limited

in the State and, therefore, the processing industry should be set up in the State. The contracts were awarded by negotiations, since earlier attempts to award it by auction did not materialise as offers were not forthcoming. The Supreme Court upheld such contracts for the simple reason that the court should not interfere in the economic policy. It expressly ruled that securing the highest revenue was the prime consideration for awarding the contract.42. We again find a similar proposition laid down in the case of State of Madhya Pradesh v. Nandlal Jaiswal . The production and distribution of liquor was entirely controlled by the State of Madhya Pradesh. Even the distilleries were owned by the State but run by entrepreneurs under licences awarded in auction. Over the course of time the distillery had become dilapidated, the machineries therein were replaced by entrepreneurs there being pollution problem. Therefore, the State decided to shift the distilleries and businessmen be invited to set up and run the distilleries. Only to those businessmen who were prepared to incur expenses to establish distilleries the licences for sale and distribution were to be given. The respondents in those cases showed interest. By the time the writ petitions were filed each distiller had invested huge sums extending up to rupees two crores. The Supreme Court relying upon the ratio laid down in Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, , at length discussed the pernicious nature of the trade and reiterated that in economic policy the courts should not interfere.43. Many more cases were cited at the Bar on the point, but we do not feel it necessary to refer to them since the law laid down is almost the same. There are cases even approving contracts given to private individuals by negotiations but those were cases where the circumstances were different and the situation so demanded. As for instance the grant of the very right of spare capacity by GMC Ltd. to ACS Ltd. under the original agreement when there were no takers and ACS Ltd. were induced to take over and also incur expenses for upgrading the machinery and spend for new ones. There was, however, no justification for the first respondent/GMC Ltd. to enter into the disputed agreement with ACS Ltd. without giving opportunity to others to compete with ACS Ltd. and also deprive the State of higher revenue which they are entitled to get. Clearly enough the agreement of December 1, 1992, is contrary to the mandate of article 14 of the Constitution and is, therefore, void.44. The defence of article 14 was also sought to be rebutted on behalf of the petitioners by pointing out the following averments made in affidavit-in-rejoinder to the affidavits filed by the second respondent. The relevant part reads as under :"I say that in the year 1991, pursuant to the request of respondent No. 1, the all India Meat and Livestock Exporters Association had called upon all its members to utilise the facilities of respondent No. 1. However, there was no response to the said appeal even though everyone in the industry has an opportunity to come forward with the offers. I deny that the said agreement dated December 1, 1992, is opposed to public interest."45. We make it clear that the circular in question was not filed along with this affidavit. An attempt was made to show a xerox copy of the same at the last stage while making winding up submissions. We have declined to look into it. In any event, the submissions made have no force whatsoever and deserve rejection for reasons stated below :(1) the membership list is not filed by the petitioners in order to show that each and every member received the circular;(2) it is doubtful that MacDonald Halal Frozen Foods, a partnership firm which came into being much later did receive the communication alleged to have been circulated by the association. It may be relevant to observe that the firm of MacDonald Halal Frozen Foods was registered only for the purpose of making an offer to the first respondent at the time when the first agreement with ACS Ltd. was about to expire; and (3) admittedly, the alleged opportunity was given in the year 1991 when the utilisation of spare capacity of the abattoir was with ACS Ltd. and the production was in progress. No offer can be expected from any one knowing the subsistence of the agreement between the GMC Ltd. and ACS Ltd. which was to last for about two years more.46. Therefore, there is no substance in the contention that the disputed agreement is not opposed to public interest.47. One more contention is raised on behalf of the petitioners that they have a vested right under the agreement and those civil rights were sought to be violated without complying with the principles of natural justice. The unilateral termination was in contravention of clause 21 of the agreement which prohibits either party from terminating the agreement ex parte. We are unable to persuade ourselves to accept the contention because the agreement in question is void at the threshold since it offends article 14 of the Constitution. No useful purpose would be served by giving opportunity to the petitioners. We may also usefully refer to the decision of Radhakrishna Agarwal v. State of Bihar, , where it is laid down that Rules of natural justice are attached to the performance of certain functions regulated by statutes or rules made thereunder involving decisions affecting rights of parties. For these reasons we hold that the petitioners do not deserve any opportunity.48. Several other contentions were raised like violation of the provisions of the Companies Act, the maintainability of the petition and the grant of relief under article 226 of the Constitution, besides others, but we do not propose to decide those points since the petition is liable to be rejected in view of the findings given above. Deciding the remaining points would only be an exercise in futility.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]15. It is clear that GMC Ltd. were on the look out for a person who could upgrade the abattoir by making investment and simultaneously use its spare capacity and pay GMC Ltd. a specific guaranteed minimum amount. Though at the time the GMC Ltd. approached ACS Ltd. they had shown their willingness to provide necessary infrastructure by installing some of the machinery which was not there but it appears that they could not do so for want of finances. This would be clear from the letter written by GMC Ltd. to APEDA as late as on July 13, 1989, where it is stated that the most acute problem is of finance which GMC Ltd. is facing. The financial liabilities of the company do not permit GMC Ltd. to go in for improvement at additional cost. Only for this reason GMC Ltd. had to enter into an agreement with ACS Ltd. It may be appropriate to observe here that it took nearly five years for GMC Ltd. to find out a person who could invest and at the same time pay a guaranteed sum to them. It is in these circumstances that ACS Ltd. was given facility to utilise the spare capacity of the abattoir and the agreement dated April 8, 1988, came to be executed. It cannot be denied that ACS Ltd. was induced to enter into the agreement dated April 8, 1988.Soon after the agreement was signed the second respondent received a letter from Mac Donald Halal Frozen Foods dated December 3, 1992, wherein they showed their willingness to take the complex on lease for a period of five years and also stipulated some of the conditions therein. In a subsequent letter dated December 5, 1992, the same party offered a minimum guaranteed amount of Rs. 26 lakhs per annum for five years. It appears from the Government files produced before this court that the comments of the managing director were called for as the second respondent found that the offer of Mac Donald Halal Frozen Foods was very lucrative. This is clear from the note sheet dated December 18, 1988, and the cover sheet where it is written "Leasing of Meat Complex/Slaughter to Mac DonaldProposal reg." The managing director of GMC Ltd. emphatically opined that it is not advisable to enter into any sort of arrangement/agreement with Mac Donald Halal Frozen Foods for various reasons mentioned in the note. After the note was received that file was ordered to be closed because the matter was being processed simultaneously in another file bearing the same number. It appears from the second file that the opinion of the Law Department was sought. According to that opinion also it was advised that it may not be possible for GMC Ltd. to rescind the agreement unilaterally. However, the opinion clarifies the need for taking the approval of the State Government before the meat complex was leased out to ACS Ltd. Reliance for this purpose was placed on article 26 of the articles of association. However, a decision was taken by the then Chief Minister, Shri Ravi Naik, to invite tenders since the agreement with ACS Ltd. was not in conformity with the articles of association of the company. It is in this background that a letter dated February 2, 1993, came to be addressed to the managing director of GMC Ltd. by the second respondent to take steps for rescinding the contract with ACS Ltd. Since it was not in conformity with the articles of association. GMC Ltd. was also directed that short notice tenders be invited immediately giving wide publicity in the local as well as national newspapers for leasing out the spare capacity of theBefore entering into the controversy it is interesting to note that what has been given to petitioners is a right to use thewhilst it is idle because slaughtering of animals for local consumption within the State of Goa is also carried out at the same place by the licensed meat traders of the municipalities. This right in the agreement dated April 8, 1988, is described as "the use of facilities" at GMC Ltd. Even in the subsequent agreement dated December 1, 1992, the same words are used. The word "lease" was never in the picture till Mac Donald Halal Frozen Foods steps in the picture. In their letter dated December 3, 1992, the word "lease" has been used and since then the words "use of facilities" were converted to "lease" because that would facilitate the respondents in bringing their defence under article 26. By no stretch of imagination could a right of partial user of the facilities be described as a "lease". There is no transfer of interest in the property and that too exclusively. The attempt on the part of the respondents to describe the use of facilities as "lease" is totally misconceived.22. At the stage of arguments, it was suggested that the petitioners were given the right to run the whole of the undertaking. Even this is incorrect inasmuch as the petitioners are using the idle capacity of the slaughterhouse to carry on their own business and for such use of the abattoir, payment as agreed was being made. Such a user can never come within the sweep of sale, lease or disposal otherwise as sought to be contended. These words only envisage a complete and exclusive transfer of an undertaking by GMC Ltd. to a third party and the transferee derives the right to hold, possess and control that undertaking. A mere user of facilities and that too partially, would not attract the provisions of article 26(2) of the articles of association.e next question that arises is whether GMC Ltd. ever sought the approval of the second respondent and it wasrefused. In this connection it would be worthwhile to peruse the minutes of the meeting of the board of directors held on February 5, 1992. In that meeting, the disputed agreement was deliberated upon. It is stated there that a letter has been received from the second respondent declining its approval or consent. Even the resolution that was adopted on the point clearly stipulates that the agreement is not to be acted upon since the State Government has declined its approval/consent. We have not come across any such letter on record. No attempt was also made on behalf of the respondents to point out such a letter. The only communication received by GMC Ltd. from the second respondent was a letter dated February 18, 1993, which also does not speak about the approval/consent. The minutes of the meeting are clearly misleading because they purport to convey that approval was applied for and it was declined by the second respondent. As a matter of fact, no approval or consent was sought by GMC Ltd. either before or after the signing of the agreement. We may venture to observe that in the absence of any letter declining the approval/consent, the mention of it in the minutes is either false or the letter in question has been suppressed by the respondents.25. It is now a settled proposition that in contractual matters the State Government is bound by the rule of fairness and arbitrariness. It was urged on behalf of the petitioners that the action of the respondents is pregnant with mala fides, unfairness and arbitrariness. The contention is based on the two files produced by the State Government at the instance of the petitioners. The records do reveal that in one of the files which was opened earlier on receipt of the letter from MacDonald Frozen Foods dated December 3, it is written on the cover sheet "Leasing of Goa Meat Complex to MacDonaldProposal reg.". The order sheet reveals that the comments of the managing director were called for on the letter of MacDonald addressed to the Chief Minister directly. The managing director submitted his notes pointing out various reasons including the efforts made by ACS Ltd. in upgrading the complex and inviting foreign agencies for procuring export of the products manufactured there and as to why it was not advisable to enter into any sort of arrangement/agreement with this MacDonald Halal Frozen Foods. In other words, the managing director desired that the existing arrangement/agreement with ACS Ltd. should be continued. This file, however, came to be closed since the matter is being examined in another file which was simultaneously opened. The heading on the second file was "lease of spare capacity ofof the Goa Meat Complex Ltd. (GMCL) at Usgaon". This file indicates that the opinion from Legal Department was sought. In that opinion a doubt was thrown that the first respondent by signing an agreement of lease with ACS Ltd. had acted contrary to article 26(2) of the articles of association. Despite such observations, the Minister for Agriculture endorsed on the file that it would not be proper to deal with MacDonald Halal Frozen Foods at this stage and the decision of the company should be ratified. The Chief Minister, however, did not agree and came to the conclusion that the transaction suffered from legal infirmity and therefore, it should not be given effect to. Instead tenders be invited for leasing the house to the highest bidder.26. It appears that the second respondent was much impressed by the high offer made by MacDonald Halal Frozen Foods and naturally so because the respondents would receive a substantial amount which could not be anticipated earlier. With this impression, it may have been the initial intention of the State Government to see that the complex is leased out to MacDonald Halal Frozen Foods, if circumstances permit. This explains the title on the cover sheet of the first file. We find nothing unusual in the intention of the State Government because it is always the endeavour of the State to increase its income through all available sources. However, this enthusiasm did not last long in face of the subsisting agreement with ACS Ltd. The possibility of challenge to such an action also could not be overruled. This led the State Government to find out the legality and validity of the disputed agreement. On finding out that the agreement suffers from an infirmity inasmuch as it does not conform to the articles of association, it directed GMC Ltd. not to act upon the agreement and invite tenders for leasing out the complex and thereby procure the maximum amount. We do not find any reason to hold that the State Government acted in a manner which could be described as mala fide, unfair or arbitrary. At that time they were led to believe that the agreement with ACS Ltd. was non est for a particular reason. May be that the said reason was not ultimately found to be correct. It is hence difficult for us to accept that the agreement stands vitiated on thischallenge of the second respondent on the ground that agreement infringes article 14 can only be available if the agreement dated December 1, 1992, is held to be a new one. Otherwise, delay and laches may come in their way.Reading the aforesaid clause it is quite obvious that no option is given to either of the parties. It also does not provide for any procedure for exercising any such alleged option and it does not even stipulate that the agreement has to be renewed. It simply mentions the possibility that it could be renewed. The clause is nothing but a pious hope because all agreements can be renewed, if the parties so desire and agree. Apart from this aspect, the terms and conditions of renewal are not even vaguely indicated. Such a clause is nothing more than "an agreement to agree".32. It is a settled proposition of law that no agreement is a contract and, therefore, enforceable unless the terms of such agreement are certain and capable of being certain. The clause as extracted above discloses that the renewal, if any, would be "subject to such modifications as mutually agreed in the terms and conditions". Therefore, it is not certain what modifications are anticipated or which of the terms would be changed. Such an agreement would be void under section 29 of the Contract Act.It is, therefore, clear that the agreement sued upon in this petition is not a mere continuation of the old agreement by virtue of an exercise of an option contained in the original agreement, but it is a new agreement or better still, a fresh agreement.36. There is no doubt that article 14 of the Constitution is in the nature of a command to the State and normally it is the actions of the State which are open to challenge on the ground of infringement of article 14. In the case before us, it is the State who questions the legality and the validity of the agreement which is signed by GMC Ltd. with ACS Ltd., on the ground of infringement of article 14. It is not in dispute that GMC Ltd. is also a State within the meaning of article 12 of the Constitution. It is also not in dispute that the second respondentthe State Government isa major shareholder of the company, and therefore, vitally interested in its administration and the affairs. The second respondent in its capacity as a shareholder of the company has every right to interfere, where interference is necessary, because whatever it does, it should be in the interest of the public at large. It is the public interest which is of paramount importance to the State Government. It can question any of the acts of the company ifthe State Government isof opinion that the company has strayed away on the wrong path and that includes even a challenge to the agreement in question. We see no bar for the State Government to raise the defence of violation of article 14 upon coming to the conclusion that the agreement in question is void right at the threshold. The situation would have been different had the second respondent raised a contention that the contract discriminates against the respondents and thereby the agreement is vitiated under article 14. The State cannot plead discrimination against itself. The contention as raised is that the contract is contrary to thenorms laid down by the Supreme Court inasmuch as it is a nullity and the second respondent can set up such a plea of nullity as a shield to the petitioners action which, in essence, is nothing but an action for specific performance. In such an action, it is open for this court to determine whether the action is valid at law and also enforceable. In these circumstances, the second respondent is not precluded from raising a defence that the agreement is violative of article 14.We make it clear that the circular in question was not filed along with this affidavit. An attempt was made to show a xerox copy of the same at the last stage while making winding up submissions. We have declined to look into it. In any event, the submissions made have no force whatsoever and deserve rejection for reasons stated below :(1) the membership list is not filed by the petitioners in order to show that each and every member received the circular;(2) it is doubtful that MacDonald Halal Frozen Foods, a partnership firm which came into being much later did receive the communication alleged to have been circulated by the association. It may be relevant to observe that the firm of MacDonald Halal Frozen Foods was registered only for the purpose of making an offer to the first respondent at the time when the first agreement with ACS Ltd. was about to expire; and (3) admittedly, the alleged opportunity was given in the year 1991 when the utilisation of spare capacity of the abattoir was with ACS Ltd. and the production was in progress. No offer can be expected from any one knowing the subsistence of the agreement between the GMC Ltd. and ACS Ltd. which was to last for about two years more.46. Therefore, there is no substance in the contention that the disputed agreement is not opposed to publicunilateral termination was in contravention of clause 21 of the agreement which prohibits either party from terminating the agreement ex parte. We are unable to persuade ourselves to accept the contention because the agreement in question is void at the threshold since it offends article 14 of the Constitution. No useful purpose would be served by giving opportunity to the petitioners. We may also usefully refer to the decision of Radhakrishna Agarwal v. State of Bihar, , where it is laid down that Rules of natural justice are attached to the performance of certain functions regulated by statutes or rules made thereunder involving decisions affecting rights of parties. For these reasons we hold that the petitioners do not deserve any opportunity.48. Several other contentions were raised like violation of the provisions of the Companies Act, the maintainability of the petition and the grant of relief under article 226 of the Constitution, besides others, but we do not propose to decide those points since the petition is liable to be rejected in view of the findings given above. Deciding the remaining points would only be an exercise in futility.