IN THE HON’BLE SUPREME COURT OF INDIA
PETITIONER – RD SHETTY
Vs.
RESPONDENT – THE INTERNATIONAL AIRPORT AUTHORITY & OR’S
CITATION –
(1979) 3 SCC 489 / AIR 1979 SC 1628
HON’BLE JUDGES –
(BEFORE JUSTICES. P.N. BHAGWATI, V.D. TULZAPURKAR AND R.S. PATHAK)
DATE OF JUDGMENT – MAY 4, 1979
INTRODUCTION
This case is a pivotal judgment of the Supreme Court of India that underscored the principles of equality and fairness in administrative actions, particularly in government contracts. The case arose when the International Airport Authority invited tenders for the establishment and operation of a second-class restaurant at Bombay Airport. The eligibility criteria stipulated that bidders must have a minimum annual turnover of ₹2 lakhs. Despite not meeting this criterion, the tender was awarded to a party that did not qualify, prompting R.D. Shetty, an eligible bidder, to challenge the decision. The Supreme Court, in its ruling, emphasized that public authorities cannot act arbitrarily and must conform to standards of reasonableness and fairness. It recognized that government bodies, while contracting, are not beyond the purview of constitutional mandates. This judgment expanded the ambit of Article 14, ensuring that procedural fairness applies not only to legislative and administrative acts but also to contractual decisions of public authorities.[1]
FACTS
The International Airport Authority invited tenders for the establishment of a second-class restaurant and two snack bars at the International Airport in Bombay. The tender submitted by the fourth respondent was accepted. However, it was later discovered that the fourth respondent did not meet the tender condition requiring at least five years’ experience as a registered second-class hotelier. Despite this, the Airport Authority reaffirmed the fourth respondent’s tender, citing his significant experience with reputed clients, even though he was not a registered second-class hotelier. Ramana Dayaram Shetty, the appellant, initially considered submitting a tender but refrained from doing so due to his failure to meet the specified conditions in the invitation. Upon learning that the fourth respondent’s tender was accepted despite non-compliance with the stipulated conditions, Shetty filed a petition under Article 226 of the Constitution in the Bombay High Court. The petition was dismissed, prompting Shetty to appeal to the Supreme Court under Article 136 of the Constitution.
ISSUES
- Whether the International Airport Authority is considered a “State” under Article 12 of the Indian Constitution?
- Whether the tender confirmed by the respondents constitutionally valid?
ARGUMENTS OF THE PETITIONER
The respondent’s tender was invalid as he did not fully meet the tender conditions. The Airport Authority was bound to adhere strictly to the conditions outlined in the tender invitation. Had Shetty known that strict adherence to the conditions was not mandatory, he would have submitted a tender. The arbitrary actions of the Airport Authority violated Article 14 of the Constitution. Due to his partial compliance with the tender rules, the fourth respondent’s tender was deemed invalid. The terms stated in the invitation to tender were binding on the Airport Authority. Shetty would have filed a tender if he had realized that rigorous adherence to the requirements was not required. Article 14 of the Indian constitution was broken by the Airport Authority’s capricious acts.
ARGUMENTS OF THE RESPONDENT
The classification of a hotel or restaurant by the Bombay Municipal Corporation depends on the capability of the organisation, not on the owner being a registered hotelier. Since the invitation for tenders did not have statutory force, deviations from the conditions would not invalidate the process. The Airport Authority had reserved the right to accept or reject any tender and its decision was final as per the invitation terms. The Bombay Municipal Corporation classifies a hotel or restaurant based on the organization’s capabilities, not the owner’s registration as a hotelier. Variations from the terms would not render the procedure illegal because the invitation to tenders lacked legislative authority. According to the terms of the invitation, the Airport Authority retained the right to accept or reject any tender, and its decision was final.
COURT’S REASONING
The Supreme Court of India elucidated principles concerning government contracts and the application of Article 14 of the Constitution, ensuring equality and fairness in public dealings. The case arose when a tender for a canteen contract was awarded to an ineligible bidder. The petitioner challenged this, asserting that the process violated the equality mandate. The Court held that governmental bodies, while engaging in commercial transactions, are bound by constitutional principles, particularly Article 14. It emphasized that arbitrary actions in awarding contracts are impermissible and that every action of a public authority must align with reasonableness, non-discrimination, and fairness. The Court observed that the eligibility conditions in the tender were fundamental and could not be ignored. The authority’s deviation from the specified criteria to favour one party was deemed arbitrary and violative of Article 14. Additionally, it underscored that when the government acts, whether in public law or private law capacities, it cannot escape constitutional accountability. Justice Bhagwati’s reasoning highlighted the broader implications for governance, stating that the rule of law governs all state actions, ensuring they do not infringe fundamental rights. This landmark decision established that public authorities must adhere to fair procedures, safeguarding transparency and preventing favouritism in contractual dealings, thereby reinforcing accountability and equality in state functions.
PRECEDENT ANALYSIS
The Supreme Court of India, in this case, dealt with the issue of arbitrariness in awarding contracts by public authorities, reinforcing the need for such authorities to act per Article 14 of the Indian Constitution, which guarantees equality before the law. The case arose when the International Airport Authority awarded a contract to a bidder who did not meet the eligibility criteria set out in the tender. The petitioner, R.D. Shetty, challenged this action, arguing that it was arbitrary and violated the principles of fairness and equality. The Court observed that government actions, even in the realm of commercial activities, must adhere to constitutional principles. Justice P.N. Bhagwati, delivering the judgment, emphasized that when a public authority sets eligibility criteria for a contract, it must adhere strictly to those criteria. Any deviation amounts to arbitrary action and is violative of Article 14. The Court further elucidated that public bodies cannot act whimsically and must ensure that their actions are informed by transparency, fairness, and a rational basis. This decision also introduced the concept of legitimate expectation, where individuals interacting with public authorities are entitled to expect consistent and fair treatment. The ruling underscored that public contracts cannot be awarded based on discretion or favoritism, as such practices undermine the rule of law. The precedent set by this case has had a far-reaching impact on administrative and constitutional law in India. It has been cited extensively in subsequent cases to stress the need for non-arbitrariness and transparency in government decision-making. The principles enunciated in this case have also shaped the jurisprudence around tender processes, ensuring accountability and safeguarding public interest. Ultimately, the case reinforced the judiciary’s role in upholding the constitutional mandate against arbitrary state actions, bridging the gap between administrative discretion and constitutional propriety.
In Tata Cellular v. Union of India[2] (1994), the Supreme Court delved deeper into judicial review of administrative actions in government contracts, stressing the need for procedural fairness and transparency while recognizing that courts should not interfere lightly with policy decisions. In Reliance Energy Ltd. v. Maharashtra State Road Development Corporation[3] (2007), the Court underscored the doctrine of legitimate expectation, holding that tenders or contracts should not be awarded in a manner contrary to the legitimate expectations of the participants. The judgment in A.K. Kraipak v. Union of India[4] (1969), although predating R.D. Shetty, also serves as a precursor by holding that administrative decisions must adhere to fairness and avoid arbitrariness. Furthermore, in Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir[5] (1980), the Supreme Court reiterated that the government is not free to act arbitrarily in contractual matters and must be guided by public interest. These cases collectively establish a legal framework mandating fairness, reasonableness, and accountability in public sector dealings, thereby ensuring that the discretionary powers of authorities are not misused and public resources are not compromised.
JUDGEMENT
The Court determined in this case that the Bombay Municipal Corporation only grades hotels or restaurants, not 2nd grade hoteliers. As a result, the notice’s requirement that the tender be from a registered 2nd grade hotelier was meaningless and could not be interpreted as establishing any eligibility requirements. Because the fourth respondent’s experience meets the requirements outlined in the notice, the first respondent accepted their tender. The contract expressly stated that the first respondent is not required to accept all of the offers, thus there is no statutory or administrative legislation forcing them to award contracts only through tenders. Instead, they might have awarded the contract to the fourth respondent directly. However, they continued to withhold the tender.
Despite being a stranger and failing to offer anything to the first respondent, the appellant filed a writ petition. For the petition to be maintained, there was no locus standi. This implies that the appellant should not be impacted if he chooses not to participate in the competition by submitting a tender. The complaint was that the first respondent accepted the fourth respondent’s tender and claimed that the notice stated that not meeting eligibility requirements would prevent a tender from being considered. The appellant claimed not to be aware of this and for that reason, he chose not to submit the tender because eligibility requirements were not met. The right to equality, guaranteed by Article 14 of the Indian constitution, was broken. Now, the court had to determine whether or not this was warranted by law. According to the court, the International Airport Authority, which is also the entity that issued the notice, is the government’s authority to grant licenses or accept tenders. After the court denied the writ petition, he filed an appeal with the High Court, but it was also denied.
The Supreme Court ruled that the International Airport Authority had violated Article 14 by acting in an arbitrary and discriminatory manner. The Authority was required to uphold the values of equality and non-arbitrariness because it was a tool of the State. It was decided that the acceptance of the tender from the fourth responder was invalid, underscoring the need for openness and justice in State business.
ANALYSIS
The Supreme Court of India laid down a significant precedent concerning the application of Article 14 of the Indian Constitution to government contracts. The petitioner, R.D. Shetty, challenged the award of a tender for running a canteen at the Bombay Airport to a private entity on the grounds of arbitrariness and favouritism. The tender was initially open only to those possessing specific qualifications, including five years of catering experience. However, the tender was awarded to a party that did not meet these criteria. Shetty argued that this violated the principle of equality under Article 14. The Court, in its landmark judgment, held that when the State or its instrumentalities enter into contractual relationships, they are bound by constitutional principles, including fairness, reasonableness, and non-arbitrariness. Justice Bhagwati emphasized that public authorities must act transparently and cannot bypass the eligibility conditions outlined in tenders to favour specific individuals or entities. The Court ruled that the award of the contract to an ineligible party violated Article 14 and the principles of natural justice. It further clarified that government contracts, being a part of public law, are subject to judicial review to ensure that executive actions remain within constitutional bounds. This case significantly expanded the scope of Article 14 by asserting that equality must not only be in law but also its application. It underscored the principle that public resources must be allocated in a manner that ensures fairness and impartiality. The judgment reinforced the State’s obligation to act transparently and protect the public interest while avoiding arbitrary decision-making in administrative actions.
CONCLUSION
The Supreme Court in the case held that the Airport Authority’s actions were arbitrary and discriminatory, thus violating Article 14. The Authority, being an instrumentality of the State, was bound to adhere to the principles of equality and non-arbitrariness. The acceptance of the fourth respondent’s tender was declared invalid, reaffirming the importance of transparency and fairness in the State’s dealings. It underscores the judiciary’s role in ensuring that State actions comply with constitutional mandates and principles, particularly those related to equality and non-arbitrariness. The decision also clarifies the scope of “State” under Article 12, extending it to entities with significant government control.
REFERENCES
- Vanshika Kapoor, D. Shetty vs. The International Airport Authority of India (1979) – iPleaders, IPleaders (July 15, 2024), https://blog.ipleaders.in/r-d-shetty-vs-the-international-airport-authority-of-india-1979/.
- Diva Rai, Analysis of the airport authorities under Article 12 of the Indian Constitution – iPleaders, IPleaders (July 22, 2021), https://blog.ipleaders.in/analysis-of-the-airport-authorities-under-article-12-of-the-indian-constitution/.
- Manu, Case Analysis: Ramana Dayaram Shetty V. The International Airport Authority AIR 1979 SC 1628, (Sept. 4, 2015), https://scholarticles.wordpress.com/2015/09/04/st3/.
- Article 12 Case Law: R.D. Shetty vs. Airport Authority of India, PREVIOUS NOTES (Feb. 28, 2024), https://previousnotes.com/index.php/2024/02/28/article-12-case-law/.
[1] Law Faculty, Ramana Dayaram Shetty v. The International Airport Authority & others » Law Faculty, (July 29, 2022), https://lawfaculty.in/ramana-dayaram-shetty-v-the-international-airport-authority-others/.
[2] (1994) 6 SCC 651
[3] (2007) 8 SCC 1
[4] AIR 1970 SC 150
[5] (1980) 2 SCR 1338
