C.K. Thalhath vs Kuthuparamba Municipality and Others

U.P. Singh, C.J.—The sole question raised for consideration is whether the offer of the highest bid necessarily conferred any right on the Appellant which could be an enforceable right by writ of mandamus. In other words, whether the Appellant had acquired any legal right to force the Municipal authorities to grant approval to his highest bid. The reply must be in the negative. Admittedly, the auction in favour of the Appellant had not been confirmed by the Municipality and, consequently, no right was created in favour of the Appellant on the basis of the highest bid offered by him. The so-called highest bid at the auction having not been confirmed, there was no binding contract between the parties and, consequently, the Appellant had no enforceable right to challenge in this appeal.

The Kuthuparambu Municipality invited applications from public by issuing tender notification, Exhibit P-2 for allotment of shop rooms on licence basis. Several persons applied. The Appellant, original Petitioner in O.P. No. 1380 of 1996, submitted his tender for shop room No. 7 in VI-660A on the ground floor of the shopping complex. For shop No. 7 in VI-660A there were 92 tenders of which the Appellant was the highest having offered an amount of Rs. 6,60,000/-. The Appellant was expecting that the auction would be confirmed in his favour. He, however, received the proceedings of the Municipality, Exhibit P-4 stating that since the offer was below Rs. 7 lakhs which the Municipality legitimately expected, the Council decided to re-tender the shop room. The said order was challenged by the Appellant in O.P. No. 1380/1996 before the learned Single Judge. The Original Petition was dismissed against which this appeal has been preferred. It was contended that since the Appellant had given the highest offer, there was no justification for the Municipality to re-tender the shop room. Even though the Municipality has the power, they could exercise it only after assigning proper reasons. It was further contended that the proceedings, Exhibit P-4 communicated to the Appellant in not accepting the highest offer did not assign any reason. Reliance was placed on a decision of the Supreme Court in the case of Star Enterprises v. C. and I. Development Corporation Ltd 1990 (2) KLT 37 for the proposition that when highest offers are rejected, reasons sufficient to indicate the stand of the appropriate authority should be made available. In the absence of any justifiable reasons, the Municipality had no legal right to conduct reaction.

In the counter affidavit the Municipality took up their stand that acceptance of highest offers were subject to confirmation by Council and the Municipal Council was the authority to confirm the auction. Since the highest offer was below Rs. 7 lakhs which was below the legitimate expectation, the Council decided to conduct reaction. The Municipality invited the Appellant as well for negotiations on the belief that he may enhance his offer to Rs. 7 lakhs. Since the offer was below Rs. 7 lakhs, the Municipal Council had quite justifiably decided to reaction the room. It was contended that the first Respondent-Municipality had the legal right to do so and there was sufficient reason for conducting reaction because the offers received were below Rs. 7 lakhs.

At the very outset it may be pointed out that the reasons for rejecting the offer of the Appellant is quite specifically stated in the order Ext. P-4 itself. The Municipality had the legitimate expectation to get the maximum amount in a public auction. It was certainly entitled to look for the best deal with regard to its properties. There was no material to show that the Municipality acted in an arbitrary or mala fide manner. The admitted position is that the auction had not been confirmed in favour of the Appellant. The Municipality quite genuinely and bona fidely found that the offer was below the amount expected by it. Its bona fide could not be doubted in conducting reaction.

In the case of Star Enterprises 1990 (2) KLT 37 (supra) the Supreme Court held:

The State is certainly entitled to look for the best deal in regard to its properties. This has been accepted by several decisions of this Court with reference to State action under the Excise Laws....We must, therefore, proceed on the footing that Respondent No. 1 acted bona fide and in refusing to accept the highest offers of the Appellants in regard to specific plots has been actuated by the consideration of looking for better offers for the specific plot in the economic interests of Respondent No. 1.

In a catena of cases the Supreme Court has now laid down the principle that it is open to the Government to accept or reject the bids but that must be guided and controlled by reasons and public interest and it should not be an arbitrary action.

In the case of Food Corporation of India Vs. M/s. Kamdhenu Cattle Feed Industries, it was laid down that:

Even though the highest tenderer can claim no right to have his tender accepted, there being a power while inviting tenders to reject all the tenders, yet the power to reject all the tenders cannot be exercised arbitrarily and must depend for its validity on the existence of cogent reasons for such action. The object of inviting tenders for disposal of a commodity is to procure the highest price while giving equal opportunity to all the intending bidders to compete. Procuring the highest price for the commodity is undoubtedly in public interest since the amount so collected goes to the public fund. Accordingly, inadequacy of the price offered in the highest tender would be a cogent ground for negotiating with the tenderers giving them equal opportunity to revise their bids with a view to obtain the highest available price. The inadequacy may be for several reasons known in the commercial field. Inadequacy of the price quoted in the highest tender would be a question of fact in each case. Retaining the option to accept the highest tender, in case the negotiation do not yield a significantly higher offer would be fair to the tenderers besides protecting the public interest. A procedure wherein resort is had to negotiations with the tenderers for obtaining a significantly higher bid during the period when the offers in the tenders remain open for acceptance and rejection of the tenders only in the event of a significant higher bid being obtained, during negotiations would ordinarily satisfy this requirement. This procedure involves giving due weight to the legitimate expectation of the highest bidder to have his tender accepted unless outbid by a higher offer, in which case acceptance of the highest offer within the time the offers remain open would be a reasonable exercise of power for public good.

In the present case when the writ petition was admitted and interim order was passed on 23rd January 1996, notices were issued to the Municipality and its authorities stating that the reaction in respect of room No. 7 in VI-660A in the bus stand shopping complex of the first Respondent shall be subject to the result of the Original Petition. This fact has been elicited in the counter affidavit that the copy of the writ petition and the C.M.P. along with the interim order were served on the Municipality by special messenger only on 24th January 1996. The reaction as per Exhibit P-4 order was scheduled on 23rd January 1996. The reaction was conducted as per schedule on 23rd January 1996 before knowing the above interim order dated 23rd January 1996. In the reaction conducted on 23rd January 1996, the highest bid was offered at Rs. 7,10,000/-. The highest bid amount was offered by one Muhammed, M.P., M.P. House, Post Vengad. Though his highest bid was accepted provisionally, subject to the confirmation by the Municipal Council, in obedience to the interim order of this Court, the Municipality has not given the room for occupation to the highest bidder on licence basis confirming the auction in his favour. Due to the continuance of the interim order dated 23rd January 1996 passed in the C.M.P. the Municipality''s interest was prejudicially affected. The Municipality was not in a position to finalise the auction proceedings and financial interest of the Municipality was prejudicially affected. The Municipality was loosing huge amount as monthly rent. This was the stand taken by the Municipality in its counter affidavit filed in the writ petition before the learned Single Judge.

In this manner the Appellant''s highest tender was superseded by significantly higher bid made during the reaction. The fact that a significantly higher bid was obtained in the reaction, it was sufficient in the facts of the present case to hold that the Municipality satisfied the requirements of non-arbitrariness and that reaction was taken for the cogent reason of inadequacy of price offered in the highest tender.

Every legitimate expectation is a relevant factor requiring due consideration in a fair decision-making process. Whether the expectation of the claimant is reasonable or legitimate in the context is a question of fact in each case. Whenever the question arises, it is to be determined not according to the claimant''s perception but in larger public interest wherein other more important considerations may out weigh what would otherwise had been the legitimate expectation of the claimant. A bona fide decision of the public authority reached in this manner would satisfy the requirements of non-arbitrariness and withstand judicial scrutiny.

In the case of Tata Cellular Vs. Union of India, it was held:

Judicial quest in administrative matters has been to find the right balance between the administrative discretion to decide matters whether contractual or political in nature or issues of social policy; thus they are not essentially justiciable and the need to remedy any unfairness. Such an unfairness is set right by judicial review.

It was further held:

It cannot be denied that the principles of Judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favoritism. However, it must be clearly stated that there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down.

In the facts of the present case, we find no reason to hold that the Municipality did not act fairly in not accepting the highest offer of the Appellant. On the other hand, the action of the Municipality was in public interest and it obtained the highest offer in public auction to the extent of Rs. 7,10,000/- and there was no arbitrariness in the action taken by the Municipality. In this view, the appeal is dismissed but without any order as to cost. The Municipality is directed to proceed in finalising and confirming the highest bid offered by Muhammed M.P. in the reaction conducted by the Municipality on 23rd January 1996.